While protocols are not legally binding, there is an expectation that they will be applied.
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Protocol
- As soon as possible after you receive advice of the resident’s intention to vacate or of their death, it is good practice to meet with the resident or their legal representative about appropriate marketing strategies.
- At that meeting, it is good practice to advise the resident or their legal representative what charges they will have to pay and for how long. This should be followed up with written confirmation of all charges. If owners corporation fees and village charges have previously been rolled together, they should be separated out into their components.
- When a unit is proving difficult to sell and ongoing charges are accumulating, consider alternative solutions and strategies and/or discuss the issue with head office management. It is good practice to advise the resident or their legal representative of any such change in direction.
- When a resident is under a contract that has no statutory limits on the length of time they must pay ongoing village maintenance charges and personal services fees, it is good practice to consider treating them as if they did have those protections.
- It is good practice to consider providing an open offer to the resident or their legal representative to defer the payment, or further payment, of charges until resale or re-lease, and deduct them from the sale proceeds or exit entitlement.
- It is also good practice to provide monthly invoices that list the village maintenance charges, the owners corporation fee and personal services fee and that show the period each component is payable for. This will also increase transparency and help reduce disputes.
Issues
- Residents (and their families) may object to paying maintenance charges and personal services fees when they are no longer receiving these services.
- Maintenance charges and personal services fees can accrue over time, particularly for hard-to-sell units. These charges are incurred on top of owners corporation fees, council rates, utility charges and the interest charged on any aged-care accommodation bond. Combined, they may significantly reduce residents’ exit entitlements and may sometimes leave them in a position of negative equity.
- When owners corporation and retirement village charges are rolled together, it can hide the fact that different statutory provisions apply to increases in the charges and that there is or may be a different basis for residents’ liability for each charge.
Rationale
Issues about ongoing charges can sometimes arise at a difficult and emotional time for residents and their families. This is usually because the relevant unit is taking some time to sell or re-lease, and is often heightened where the exit entitlement is needed to fund the resident’s move to an aged-care facility, or it forms an inheritance.
Residents and their families may sometimes object to the idea that charges are payable even though the services are no longer being received, regardless of what the contract says. This can be a particularly difficult issue if the resident or their family is not aware that the contract permits ongoing charges.
They may forget that even in a normal property sale, they would at least be liable to pay owners corporation fees, council rates and utility charges up to the transfer date; and that if they terminated a normal lease before it expired, they would be liable for the rent until the landlord found another tenant (or the lease expired).
As time progresses, charges and interest accumulate and this can make it harder for the resident or their family to wait until the preferred selling price can be obtained.
Residents who entered a village before 30 January 2006 are not covered by the changes to the Retirement Villages Act 1986 regarding ongoing charges that came into effect on that date. They are therefore more vulnerable to lengthy sale delays and the consequent accrual of charges.
Finally, rolling together owners corporation fees and retirement village charges can sometimes confuse owner-residents. Owners corporation fees are subject to different constraints than those applicable to village maintenance charges.
For instance, owner-residents’ liability to pay owners corporation fees is based on their lot liability but their liability to pay village charges, as set out in their residence contract, may be different. If so, owner-residents may find it difficult to ascertain whether their rolled up charge has been correctly calculated.
For managers, the issue is that village overheads continue to be payable and may not vary or may vary only marginally with the level of occupancy. For the other residents of a village, particularly a loan-licence village, the issue is the equitable sharing of the burden of these costs between outgoing and ongoing residents. The aim of this protocol is to balance these interests.
Applicable law
Pre-30 January 2006 contracts (all village fees – all residents): the residence contract is the document that will contain the obligations of the resident to pay charges after vacating the unit and before the unit is re-sold/re-leased.
Post-30 January 2006 contracts (village fees for personal services – all residents): section 38A of the Retirement Villages Act 1986 prohibits the charging of fees beyond 28 days after the resident has vacated the unit.
Post-30 January 2006 contracts (village maintenance charges – non-owner residents): section 38B of the Retirement Villages Act 1986 prohibits the charging of fees beyond six months after the resident has vacated the unit.
Post-30 January 2006 contracts (village maintenance charges – owner residents): the residence contract is the document that will contain the obligations of the resident to pay charges after vacating the unit and before the unit is re-sold/re-leased.
Owners corporation fees (owner residents): payable until the unit is resold and can only be waived or deferred by resolution of the owners corporation.