NSW Retirement Villages up in arms at new regulations

Retirement Villages Australia (RVA) has said New South Wales (NSW) village operators will be “hit for six” by proposed regulations proposed by the NSW Office of Fair Trading.

RVA says they  will create substantial additional costs and attack the capital value of villages, especially long established villages.

Mark Eagleston of the RVA, says the draft regulations have the potential to threaten the viability of the retirement village industry in NSW. If passed, they may well be incorporated in other states.

The RVA is seeking operator support as it prepares submissions on the draft which will close on 4 November. The amendments are expected to come into effect on 23 December.

RVA says law firm Minter Ellison’s evaluation of the regulations indicate that of the eight major provision changes, several stand out:

1) Capital maintenance (Clause 4)
The following items will not be regarded as capital maintenance and therefore not recoverable through residents recurrent charges:

• painting external surfaces
• repair of capital item if that item has already been repaired twice within a period of 12 months before the proposed repair. (An example could be an elevator for warranty reasons requiring more than two services per year)
• work that is required by law to be carried out, such as complying with fire safety regulations
• work on vacant residential premises
• maintenance of a capital item (including the replacement of a component of that item), but only if the costs of maintenance is more than 50% of the cost of replacing the whole item
• maintenance of a capital item that is carried out for the purpose of enhancement or improvement of the item or the retirement village in which the item is located by the results in an enhancement of the improvement to the item or village

2) On legal and other expenses (Clause 13)
The resident need only pay up to $200 for legal and other expenses incurred by the operator in the preparation of a village contracts.

3) Limit on contingencies in annual budget (clause 20)
Amount for contingencies in a proposed budget cannot exceed the greater of CPI or 4% of the total budget. This could cause problems with items beyond the operators control such as council rates or electricity.

4) Exclusions from current charges – payroll tax, marketing costs
Payroll tax cannot be recovered through recurrent charges unless is solely attributable to the operation of the retirement village in which it is charged.

This will affect larger operators in particular. The only payroll tax recoverable will be for the employees directly involved in the operation of the individual village. Head office expenses and shared expenses (e.g. groundsmen spread across several villages) will not be covered. Any flat rate management or administration fee is also not recoverable.