Retirement villages and “Over 55 Lifestyle Estates” are becoming popular post-retirement living arrangements among the Australian ageing population. While these communities offer unique lifestyles, it is crucial to consider the potential complexities and issues which may arise in respect of post-retirement living arrangements.
The establishment, operation and management of Retirement villages and retirement village contracts are subject to the Retirement Villages Act (NSW) 1999 (the ‘Act’).In 2021, significant changes were introduced to the Act to safeguard certain rights of residents.
Priority of Debt
In the landmark 2021 NSW Supreme Court case of Goyal v West [2021] NSWSC 526, Ward CJ in Equity ruled that the return of ingoing contributions made by residents and former occupants of a retirement village should take precedence over a secured debt. The court’s decision hinged on the interpretation of section 182G of the Act, which was deemed to operate in favour of safeguarding the ingoing contributions of all residents over the interest of secured creditors, meaning all unregistered statutory charges of the residents should be prioritised over any registered and/or unregistered mortgages.
- This ruling substantially protects residents if the retirement village operator were to become insolvent and/or liquidated. Determining the priority of each party entitled to a payout under such circumstances is of paramount importance, and the court’s decision ensures that residents’ interests are prioritised.
However, under the Act, there are some circumstances where this protection is not applicable to registered interest holder of retirement village. A person is the registered interest holder with respect to residential premises in a retirement village if a residence contract is in the form of a registered long-term lease (i.e. with a minimum term of at least 50 years) and includes a provision that entitles the resident to at least 50% of any capital gain. This is because a lease of this nature is regard as being more beneficial than, for example, a licence agreement for a shorter term.
Access to exit entitlement money
When you decide to permanently vacate your retirement village premises, some contracts may require you to:
- “resell” the premises prior to accessing your exit entitlement money; or
- if you fail to find a new resident the operator may set a specific time frame such as five years from the termination date within which you can receive the exit fee
These arrangement may pose certain risks for residents. As the incoming contribution is often paid to the operator in the form of a loan with no interest, the operator may not have a strong incentive to actively seek a new resident for your property.
The changes to the Act introduced specific provisions to allow residents in the Sydney metropolitan area, including Blue Mountains, Wollongong, and Newcastle, a period of 6 months to apply for payment of the exit entitlement fee. For residents in all other areas, the prescribed period is extended to 12 months.
If you make an application to the Secretary, the village operator must satisfy the Secretary that they have not ‘unreasonably delayed’ the sale of the property. If the operator fails to provide sufficient evidence, the Secretary may issue an order to the operator to pay you the exit entitlement money within 30 days of the date of the order, whether or not the sale of your property is finalised.
However, only resident can apply for an exit entitlement order, resident’s estate cannot make an application to the Secretary.
Recurrent charges when vacating
Village operators may only charge residents for up to 42 days for general services (gardening, administration, cleaning, etc.) after the resident has permanently left the property. This new provision only applies to residents whose contract is in the form of a long-term registered lease that entitles them to at least 50 per cent of any capital gain.
Key Takeaways
The 2021 changes to the Act:
- protects resident’s rights to access exit entitlement payments with a reasonable time and promotes a fair and transparent process; and
- offers added financial security to residents who have permanently left the property by capping recurrent charges.
Further, the judiciary’s interpretation of section 182G of the Act prioritises resident’s interests over the interest of secured debtors.
While the above offers greater protection to resident’s rights, seeking independent legal advice before entering into residential village contracts is crucial to safeguarding your rights and interests in retirement village living.
For further information please contact one of our property lawyers on 9635 7966 or through the various contact us options on our website www.matthewsfolbigg.com.au
