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Victorian Parliamentary Inquiry into the Retirement Housing Sector

| Published by Rosemary Southgate, Donna Rayner

The Legislative Council’s Legal and Social Issues Committee released its report on the Inquiry into the Retirement Housing Sector on 7 March 2017. The aim of this inquiry was to identify areas for improvement and reform within the retirement housing sector (encompassing retirement villages, caravan parks and residential and lifestyle parks, independent living units and rental accommodation).

The Report recognises the importance of the retirement living sector in providing housing and services for Victorian seniors to assist in meeting an increasing demand for retirement housing. It also recognises the variety of options available across all sectors of retirement housing and the importance of retaining a balance between regulation and allowing growth and innovation.

The Report notes a number of issues of concern for residents of residential parks and rental housing. However, the Report did not make any recommendations relating to this type of retirement housing as an extensive review of the Residential Tenancies Act 1997 is currently being undertaken as part of the Victorian Government’s Fairer Safer Housing initiative. This review is expected to be completed later this year.

The Report sets out 15 recommendations for the Victorian Government to consider. A copy of the report can be obtained here. We comment on a number of the Recommendations as follows.

Recommendation 1
That the Minister for Planning give consideration to planning provisions that encourage increased supply of retirement housing, such as the establishment of Retirement Housing Zones.

This is a positive outcome of the Inquiry, with an acknowledgement as to the difficulties in sourcing land for retirement housing development when competing with the residential housing sector.

Recommendation 2
That the Victorian Government review the Retirement Villages Act 1986. The review should determine the effectiveness of the Act in providing consumer protection while allowing growth and innovation in the sector.

Operators will be concerned at the prospect of a further review of the Act, given the most recent reforms in July 2014 in relation to disclosure and residence contracts. However, the Report notes that the Act “currently strikes the right balance between consumer protection and the retirement village sector’s ability to innovate and grow”. It suggests that a wholesale review of the Act is not required, rather that certain matters have been identified in the Report which should be considered (see Recommendations 6, 8 and 13). It would be of concern if the Government did however choose to respond to the Report by undertaking a broader review of the Act.

Recommendation 5
That the Victorian Government investigate measures to ensure that all retirement village units hold the same owners corporation voting rights.

The interaction between the Retirement Villages Act and the Owners Corporations Act 2006 is currently under review by Consumer Affairs Victoria (“CAV”) (see Options for reform of the Owners Corporations Act 2006). At this stage those options include requiring a separate retirement village committee and owner’s corporation committee, and separate retirement village and owners corporation annual general meetings. It is not clear from the option paper whether and how lot owner voting rights may be amended.

Recommendation 6
That the Retirement Villages Act 1986 and related regulations define whose responsibility it is to pay for repairs and maintenance, both inside units and in the communal areas and facilities. These amendments should further require all works to be undertaken within a reasonable and mutually acceptable timeframe.

The Report identified that responsibility for repairs and maintenance of a resident unit is one of the most significant causes of disputes within villages. We agree that this is a common area of conflict. However, there are various repair and maintenance schemes in operation across villages, which usually are linked to the financial structure of the village – the ingoing price, maintenance charges and deferred management fees. We suggest that any review of these requirements should require operators to clearly set out the responsibility for these items within residence contracts, but the legislation should not prescribe who is responsible for each item of repair or maintenance. Defining repairs and maintenance responsibilities within the legislation may in fact create further complication and uncertainty if the definitions are too prescriptive.

Recommendation 7
That the Victorian Government require that retirement village operators disclose ingoing prices with and without deferred management fees.

This recommendation would require an operator to calculate the amount of the ingoing price that would be charged to an incoming resident if the deferred management fee was factored into the ingoing price, rather than charged upon the resident’s exit from the village. In other words, the operator is required to disclose the net present value of the deferred management fee. Although this may initially sound straightforward, there is a concern that this information has the potential to confuse and mislead consumers given the number of factors taken into account in determining the deferred management fees applicable in a village scheme, such as the period of occupancy, type of dwelling, age of resident and sharing of any capital gain or loss.

Recommendation 8
That the Victorian Government require that deferred management fees are applied on a pro rata basis.

This recommendation is consistent with the position in New South Wales. Many operators in Victoria already provide for a pro rata calculation of deferred management fees, particularly after the first year of occupation. For those operators who charge a higher fee in the first year, this may have a limited impact. However, given the average period of occupation is 7 years (PWC/Property Council retirement Census 2016) this is unlikely to have a significant impact on village operators.

Recommendation 9
That the Victorian Government require that retirement village operators provide every resident with an estimate of their exit fees every financial year.

The Report notes the positive feedback from stakeholders in relation to the exit entitlement summary requirements of the new form of disclosure statement in use from July 2014. The Report states that it would be useful for all residents to have this information, and for all residents to receive this regularly. Although we agree that this may be useful for residents, we suggest that given the likely cost imposition to operators in providing this information to every resident on an annual basis, this information only be required to be provided upon request by a resident, and at no charge.

Recommendation 10
That the Victorian Government make provisions to allow retirement village operators to pay either the refundable accommodation deposit (RAD) or daily accommodation payment (DAP) for residents entering aged care until the resident’s unit is sold.

This recommendation addresses what is known as the ‘aged care rule’ which is currently under review by the Victorian Government. It is consistent with the Property Council Australia’s submission to the Victorian Government.

Recommendation 15
That the Victorian Government introduce a new alternative for low cost, timely and binding resolution of disputes in the retirement housing sector. This may be through a new body or by extending the powers of an existing Ombudsman.

The Report considered options including the creation of a retirement village advocate, similar to the system in operation in South Australia, and the appointment of another body or ombudsman to determine disputes. The Report preferred the creation of a separate body with the ability to make binding decisions in relation to disputes between residents and operators. Depending upon how this body is funded this is likely to create a cost burden for operators, and ultimately residents. Given the limited number of reported disputes to CAV this seems an unnecessary measure.

The Victorian Government now has a period of 6 months to consider its formal response to the recommendations set out in the Report.

In summary, although the findings of the Report are reasonably balanced overall between increasing regulation and allowing growth and innovation, there are some concerning recommendations for reform, most particularly in relation to repair and maintenance responsibilities, price disclosure in terms of net present value of the deferred management fee and the creation of a separate body such as an ombudsman to make binding decisions in relation to disputes. It seems that Victoria will be facing more regulatory change in the retirement village sector.

For more information please contact Rosemary Southgate or Donna Rayner.