Recent reforms to retirement village laws in New South Wales offer increased transparency surrounding exit fees and funding arrangements for residents of retirement villages.
In early 2021, the Retirement Villages Amendment Act 2020 was created to:
- Enable residents to receive exit entitlement money before their unit is sold;
- Ensure residents no longer need to pay ongoing services 42 days after exiting a retirement village; and
- Provide an option for residents to use their estimated exit entitlement money to fund their move into aged care;
As of 1 July 2021, these changes are now all in force and residents will be able to apply for exit entitlement orders from 1 August 2021.
Who do the new changes apply to?
These new laws only apply to registered interest holders with a long-term registered lease which gives them at least 50% of any capital gain.
They do not apply to:
- unregistered interest holders;
- registered interest holders who own a lot in a community scheme or strata village; or
- registered interest holders whose residence right is given by shares in a company title or trust village.
Residents of a retirement village can check their Retirement Village Contract to check their interest arrangement.
Exit entitlements
Exit entitlements are payments which are transferred to residents when they permanently leave a retirement village. The amount of the entitlement will depend on the resident’s individual retirement village contract and will need to either be agreed by the outgoing resident and operator or an independent property valuer.
Previously, former residents would only be entitled to receive these entitlements after the premises was sold. Under the new amendments, residents will have the right to apply for an order to receive their exit entitlement if their unit has not been sold within the prescribed period which is:
- 6 months in metropolitan areas, or
- 12 months in other areas.
The prescribed period starts 40 days after the first of the following dates:
- the date the property is first advertised for sale;
- the date the resident permanently vacates the property (including return of their keys); or
- the date the resident gives written notice to the operator of their intention to remain in the property while it is for sale
This amendment came into force on 1 January 2021, so former residents in metropolitan areas whose property has been on sale from or before 1 January will be able to seek orders from 1 August 2021. This takes the 6 month prescribed period into account.
Exit entitlement orders will not be made if the operator of the village can show that they have not unreasonably delayed the sale of the property.
42-Day cap on recurrent charges
Village operators will only be able to charge residents for general services for up to 42 days once they have permanently left the property. General services include services like gardening, cleaning and administration.
This change applies to the registered interest holders identified above and does not affect the 42-day cap which continues to apply for unregistered interest holders. An exemption from the 42-day cap will apply for trust villages where the trust is owned for the benefit of its residents.
If a resident vacates a village between 1 January 2021 and 1 July 2021, they can ask the operator to deduct these charges from their exit entitlement.
Transition to Aged care
Most residents of retirement villages transition to aged care. This can be an expensive process and delays can be caused when residents don’t have the finances to cover the cost of the move.
From 1 January, residents can request that the village operator support their transition to aged care by using part of the resident’s calculated exit entitlement. The operator must pay up to 85% of the prescribed calculated exit entitlement to the resident’s nominated aged care provider to cover the Daily Accommodation Payment.
An operator of a village can apply to the NSW Civil and Administrative Tribunal for an order to not pay this accommodation payment. Such an order may be made if the Tribunal is satisfied that making an accommodation payment would impose a significant financial burden on the operator.
This amendment does not apply to any former residents who entered an aged care facility before 1 January 2021. However, such residents may apply for early exit entitlement payments under the changes discussed above.
Key Takeaways for Operators
To ensure compliance with the new obligations, operators should by now have:
- considered whether the new changes affect residents in their village;
- revised all village contracts and documents to ensure they comply with the Retirement Villages Amendment Act 2021;
- updated their exit procedures to ensure the exit entitlements and payments for recurrent charges are in compliance with the amendments;
For assistance navigating your rights and obligations under the reforms or to discuss further, please contact our property team who are well experienced in working with retirement villages.
Key Takeaways for Residents
These amendments are important for you to consider if you:
- have permanently vacated a retirement village and are still paying charges for general services or have not yet received your exit entitlement;
- are considering leaving a retirement village;
- are considering transitioning into aged care or have transitioned into aged care since 1 January 2021; or
- are considering moving into a retirement village and want to be aware of your rights.
For assistance in determining whether these changes affect you, requesting an exit entitlement from your operator, or understanding your retirement village contract, please contact our property team who have a wealth of experience assisting residents of retirement villages.
Article prepared by: Shannon Walsh, Graduate
