Residents who are leaving NSW retirement villages will be protected against unscrupulous fee gouging and be eligible for payments towards aged care costs under long-awaited reforms.

On Wednesday, 24 June, NSW Better Regulation Minister Kevin Anderson announced reforms which were supported by both the retirement living industry and residents. 

The reforms are mainly designed to protect NSW residents when they leave their retirement village, typically to go into aged care.

At present, under NSW retirement village legislation, there are only protections in place for what are known as “non-registered interest holders” - typically people who have a licence to occupy their dwelling or a lease of under 50 years. 

These types of residents are entitled to get their final payout - known as an exit entitlement -  within six months and can’t be charged ongoing fees for longer than 42 days after leaving the village.

However, similar protections have not been in place for long-term leasehold retirement village dwellings (who form part of the category known as “registered interest holders”).

According to the Retirement Village Residents Association, some “unscrupulous and pernicious” operators have deliberately delayed the sale of long-term leasehold dwellings for up to seven years, after they have been vacated, so they can withhold the payment of exit entitlements and to continue to collect ongoing fees.

Details of the reform

Now the NSW Government has indicated it’s going to introduce a raft of reforms to assist these residents. The key points are below:

  • The village operator will only be allowed to charge ongoing fees for a period of six weeks
  • Where a resident needs to move into aged care accommodation, the resident will have the option to have their aged care daily accommodation payments funded by the retirement village operator, up to 85 per cent of the value of their exit entitlement
  • Alternatively, if it is found that the retirement village operator has unreasonably delayed the sale of the dwelling, then the resident would be entitled to be paid out
  • This mandatory payout would apply within six months of leaving the village in the metropolitan area, and 12 months in regional areas.

In making these reforms, the NSW Government has backed down from its promise made in February 2019 to require retirement villages to automatically buy back all unsold units within 12 months. Instead, the buy back provision will only apply if the village operator has not taken “reasonable steps” to facilitate a sale.

The government made this subtle but important policy change after a similar and poorly-handled reform in Queensland caused the collapse of some retirement villages.

In addition, research undertaken by the retirement living industry found that an automatic and mandatory buyback rule could severely impact the viability of villages in NSW outer metropolitan and regional areas.

Commenting on the reforms, Mr Anderson said: “We promised to make retirement village fees fairer, and these reforms will put residents first, saving them thousands of dollars and giving them access to their exit entitlements sooner when they leave the village.”

The reforms were all supported by retirement living operators and residents.

Property Council Retirement Living Executive Director Ben Myers said: “The NSW Government’s reforms are fair and balanced ensuring protection for residents and their families as well as restoring the industry’s confidence to invest in housing options to support our ageing population.”

“The NSW Government has shown that it was listening to both the village operators and resident organisations, ensuring reforms which will ensure a smooth transition into aged care as well as ensuring a viable and vibrant senior housing sector with a choice for the consumer.” 

Retirement Village Residents Association president Jim Gibbons said: “Residents who wish to leave a village will now have some certainty about the return of their entitlements”

“This is especially so in the cases of residents wishing to move into residential aged care where the operator will be required to meet daily accommodation costs in advance of the final payout.”

Reforms a boost for retirement villages

The reforms will help bring NSW into line with Victoria and South Australia, which currently have provisions requiring operators to pay the aged care costs of departing residents, if the resident’s unit remains unsold. 

However, the NSW reforms stop short of Queensland’s 2017 legislative changes, by not introducing a mandatory buyback rules to freehold and strata retirement village units. 

Given the government’s intention to exhibit proposed legislation, and for this legislation to then pass NSW Parliament and finally be separately commenced by proclamation, it is not likely these reforms will begin until March-July 2021. 

A spokesperson for NSW Fair Trading confirmed to that, when the reforms do commence, the new rules in relation to aged care funding and the 42-day fee cap will apply to both future and existing retirement village residents. 

The spokeperson said the mandatory payout rule will apply to existing residents, as long as they don’t have their dwelling on the market when the law commences.

The national picture

The reforms are set to strengthen the value proposition of retirement villages across Australia, by building a growing national regulatory framework which provides residents with more certainty about getting funds for their aged care costs when they leave. 

Such a provision doesn’t exist in residential land lease communities, which are an emerging competitor to the retirement village industry.

On the downside, the NSW reforms will also increase the complexity of the NSW retirement village legislation, by providing three different types of rules for departing residents, depending on their dwelling tenure type.