Retirement village residents in Australia's largest State will find it easier to move into aged care - even if their village dwelling hasn't sold - under new laws which commenced on 1 January. 

The changes are available to some - but not all - retirement village residents and bring NSW into line with Victoria and South Australia, both of which have already introduced similar reforms. 

They stop short of provisions in Queensland that impose mandatory operator buybacks of units which remain unsold for long periods.

The new regulations aim to improve consumer protections for retirement village residents and are part of a broader NSW Government review of retirement villages which took place in 2017.

We look at what the new reforms have to offer.

  1. Operators will be required to make aged care accommodation payments to departing retirement village residents, if requested

More than 60 per cent of NSW retirement village residents move directly into aged care. Previously, this move could be delayed if residents were unable to sell their village unit and therefore didn’t have the money available to cover the costs of moving.

Under the new law, which came into effect on 1 January 2021, retirement village residents have gained an additional right to have their aged care accommodation costs paid by a retirement village operator, even if their retirement village dwelling has not sold. 

The new law applies to retirement village residents who’ve owned their unit through a long-term leasehold arrangement in which they are entitled to at least 50 per cent of any capital gain (this is one class of a category called “registered interest holders”). 

Unfortunately, the NSW Government was unable to tell us how many of NSW’s retirement village residents were subject to this type of arrangement.

These residents will be able to pre-claim up to 85 per cent of the value of their final retirement village payout (also known as an exit entitlement) to fund their aged care daily accommodation costs.

An operator can apply to avoid paying the aged care costs only if it is able to prove the funding to the departing resident would "impose a significant financial burden” on its business.

It’s intended for the reforms to apply to existing village contracts, although former residents who already entered aged care and permanently vacated their unit when the new rules commenced are unable to benefit from the new rule.

The reforms do not extend to registered interest holders who own a strata lot, community scheme village lot or shares in a company title village.

They also do not apply to non-registered interest holders, such as people who have a licence to occupy their unit or lease agreements under 50 years, although there are existing provisions in NSW which guarantee a payout for these people within six months even if the unit has not sold.

While this reform provides a practical boost to consumer rights for residents, by providing greater certainty in their departure from the village, it’s also evidence of a broader trend towards stronger reciprocal links between retirement villages and aged care

This helps cater to the need for a strong and effective retirement village sector which can meet the challenges posed by an ageing population and provides a bridge to long term care for residents who need it. 

A spokesperson for NSW Better Regulation Minister Kevin Anderson told Downsizing.com.au that the reforms were designed to balance the interests of retirement village operators and residents.

“Following consultation with industry, residents’ associations and the broader community, this approach was considered an appropriate balance to give those transitioning into aged care the help they needed without creating undue financial risks for villages continuing to support residents.”

  1. Protection from unreasonable delay in sales of retirement village dwellings

The reforms also provide some protections for retirement village residents who want to move, or have already moved into aged care or to another home, but whose units remain unsold and on the market for an extended period of time. 

If there’s evidence that a retirement village operator has “unreasonably delayed” the sale of a dwelling (given that most dwellings are sold via agents employed by the operator), a resident can apply to be paid out their exit entitlement even while the dwelling remains unsold.

This represents a partial back down from the NSW Government’s original promise that retirement villages would be required to automatically buy back all unsold units within 12 months regardless of whether an operator has taken “reasonable steps” to facilitate its sale. The new provisions apply when units are unsold after:

  • 6 months in a metropolitan area
  • 12 months in a regional area.

The earliest possible time that an exit entitlement will be available under the reforms is 1 August 2021 taking into account both the required 40 day notice period and the minimum period of time the unit must be on the market, which is 6 months in a metropolitan area and 12 months in a regional area.

These changes are also restricted to the same class of “registered interest holders” which are able to take advantage of the aged care accommodation payments.

The NSW Government's provisions stop short of provisions in Queensland that impose mandatory operator buybacks of units which remain unsold for long periods.

  1. A cap on recurrent costs

Some retirement village operators have come under fire in the past for requiring residents to continue to pay fees for many months or years after they’ve permanently vacated their unit, because the unit has not sold. 

A new provision prevents village operators from charging residents for ongoing general services like cleaning, maintenance and administration beyond 42 days after they’ve permanently left the property. This will apply to residents on or after 1 July 2021.

The change applies to the same class of “registered interest holders” singled out to benefit from the other reforms.

A 42 day cap is already in place for non-registered interest holders.

  1. A more transparent asset management system

A final reform will require operators to maintain an asset management plan for capital items. 

This will make management processes more transparent for existing residents and give prospective residents a glimpse into future upgrades which could affect their fees and charges.

The asset management plan must include:

  • Costs associated with maintaining and replacing items of capital
  • Reasons for decreases or increases in costs
  • How often costs are incurred and the expected lifespans of items
  • Maintenance and replacement requirements of capital items.

Operators have until the second half of 2021 to comply with the asset management provisions.

The reforms as part of the bigger picture 

There are now an estimated 60,000 people living in retirement villages around NSW, and this number is expected to grow as the population ages. The reforms are designed to give greater peace of mind to residents when they enter and leave these villages.

Please note: You should seek your own independent legal advice or make your own inquiries before signing contracts or making decisions, rather than relying only on the information above.

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