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These and other questions are being considered by the Ministry of Housing and Urban Development (HUD) in its current review of the legislation governing the Retirement Village sector (Retirement Villages Act 2003 and associated codes and regulations). HUD’s review will consider if the existing law ensures appropriate consumer protections for residents and if the rights and responsibilities of residents and operators should be better defined.
The Retirement Villages Residents Association, which represents village residents, has been lobbying the Government and Opposition members of Parliament for some time for a review of the sector and in 2021 presented a petition to Parliament in support of changes to the law. The Association is pressing for the adoption of simplified and standard form occupation agreements, the ability to require operators to repay capital sum entitlements on vacating a unit rather than waiting on the operator to achieve a re-licensing of the unit, the right to share in the increase in value of the unit on termination and other changes in the terms generally available in the sector.
In response to these calls for change, the Retirement Villages Association, which represents a majority of the village operators, is opposing the need for such major changes to the sector. It places emphasis on the need for retirement villages to remain financially viable to continue to provide a flexible range of retirement housing options and consumer choice. It considers that standard form contracts will impact adversely on villages offering a wide range of services, terms and innovation and imposing a mandatory buy-back and requiring the operators to share gains on re-licensing will undermine the viability of the village sector.
The most common form of interest held by a resident of a retirement village unit is an occupation licence, called an Occupation Right Agreement (ORA). The ORA grants the resident a right to occupy a unit for life subject to payment of a capital sum at commencement, monthly fees as a share of the village operating expenses and, on termination of the licence, payment of a deferred management fee of between 20-30% of the capital sum. Typically, an ORA will not entitle the resident to share gains on re-licensing the unit and the resident’s right to receive a repayment of the capital sum is subject to the re-licensing of the unit to a third party.
It will be seen therefore that the Retirement Villages Residents Association proposals for change represent an existential challenge to the village sector model and seriously threaten an industry that currently provides accommodation to more than 50,000 retirees throughout the country. The industry is a key part of the housing solution and the only one developing aged care in the country, so the Ministry needs to take great care in undertaking its review to make sure that the interests of the industry and residents are properly and fairly balanced. HUD has indicated that it will release a discussion document for consultation prior to the 2023 election.
If you have any questions, please get in touch with our property team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
