- The NSW Retirement Village sector is undergoing a number of changes in 2021. With new provisions in force, now is the time to review retirement village contracts.
- The key changes include: a set timeframe for paying a former resident’s exit entitlements; aged care facility payments; and a limit on how long a former resident will be required to continue to pay recurrent charges after leaving.
Retirement village contracts are set for a shakeup this year, thanks to new legislation passed in response to the Final Report of the 2017 Inquiry Into the NSW Retirement Village Sector, led by Kathryn Greiner AO (‘the Greiner Inquiry’). The changes are set out in the Retirement Villages Amendment Act 2020 (‘the Act’) (which commenced on 1 January 2021) and in the Retirement Villages Amendment (Exit Entitlement) Regulation 2021 (‘Regulations‘), which commenced on 4 February 2021. The changes include:
- a set timeframe for paying a former resident’s exit entitlements;
- aged care facility payments; and
- a limit on how long a former resident will be required to continue to pay recurrent charges after they have left the village.
These changes only apply to registered interest holders – residents of long-term registered leases who are entitled to at least 50 per cent of any capital gain; they do not apply to non-registered interest holders or residents of a strata scheme or community scheme.
The Retirement Villages Amendment (Exit Entitlement) Regulation 2021 (NSW) commenced on 4 February 2021. It introduces new provisions to deter village operators from unreasonably delaying the sale of a retirement village unit and to create a mechanism for residents to get their refund within a certain time where this has occurred. These provisions apply to existing retirement village contracts.
Previously, registered interest holders had to wait until a new person moved into or leased their old unit, before they got payment of their share of the sale proceeds (‘exit entitlements’). Once the operator received payment from the new resident, or the new resident moved into the unit, the exit entitlement had to be paid with 14 days. This meant that if the retirement village unit wasn’t re-occupied for two years, the former resident didn’t get their exit payment for two years. Some village operators set a cap, for instance, the village contract might specify that if the unit was not ‘resold’ within five years, the village would pay the former resident their exit entitlement at five years. This was quite a daunting risk for prospective residents, but it needs to be kept in mind that the same risk comes with home ownership – if you are selling your home, you don’t get paid until the property sells.
With the changes made by the Act, a registered interest holder can apply to the Secretary of the Department of Finance, Services and Innovation (‘the Secretary’) for an exit entitlement order (‘EEO’) directing the operator to pay the former resident the exit entitlement even though the residence has not sold (s 182AB).