Retirement Villages Bill. Government Bill 2001 No As reported from the Justice and Electoral Committee. Commentary.

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1 Retirement Villages Bill Government Bill 2001 No As reported from the Justice and Electoral Committee Recommendation Commentary The Justice and Electoral Committee has examined the Retirement Villages Bill and recommends by a majority that it be passed with the amendments shown. Introduction Background to the retirement village industry Retirement villages have become an increasingly popular choice for older New Zealanders. There are well over 300 villages currently in operation, accommodating more than 20,000 people comprising at least four percent of people aged over 65. However, the legal structures used are complex and not always well understood by residents or intending residents. Many involve a licence to occupy a unit and a management contract under which the operator provides facilities and services. The licence is a personal contract and does not create any interest in the land. The resident pays to acquire the licence to occupy and pays ongoing fees for the management contract. This is the most common legal structure although there are others. The charging and management practices of some retirement villages have, over the past ten years, been the subject of considerable complaint. The most frequent concern relates to payments made after a person leaves a village or dies. There is either no ability for a resident to sell his or her unit or a number of restrictions on the resident's ability to sell the unit and misunderstandings about these matters. The contractual arrangements that residents have entered into often result in a resident, on leaving the unit, continuing to pay fees or the estate receiving less than the market value of the unit and some do not fully recover their initial investment. No existing legislation has the capacity to deal with the problems and issues peculiar to retirement village residence and operation. A Law Commission report in 1999 concluded that separate legislation was required to give retirement village residents protection as consumers, residents and investors. Background to the Retirement Villages Bill The Retirement Villages Bill introduces a range of requirements for the operation of retirement villages, aimed at protecting the interests of residents and intending residents. The policy objective is to provide a regulatory framework within which older people can consider entering a retirement village, confident that there are certain statutory protections in place. The bill will require retirement village operators to: o o register all retirement villages with the Registrar of Companies comply with a government-approved industry code of practice o disclose in a standard format all essential information on retirement village ownership, management and operational procedures, terms and conditions of residence, entry and exit and sale or disposal arrangement, and charging systems file:///t /_Kim/bills/PDFs/updated/ txt (1 of 95) [9/05/ :48:22 p.m.]

2 o have a disputes procedure. The new requirements replace existing obligations for those retirement villages that currently operate under the Securities Act Protections contained in consumer, fair trading and companies law will still apply, as will security law in respect of equity securities. While securities law is adequate for exposing risks associated with the establishment and development of villages, it does not address the ongoing or particular issues that arise from the occupational arrangements within them. The Retirement Commissioner will undertake a public education role and have a monitoring and reporting function with regard to the effect of the legislation. Definition of retirement village The bill defines retirement villages as premises containing two or more residential units that provide `residential accommodation together with services or facilities, or both, predominantly for persons in their retirement'. This clause was commonly referred to in submissions as being too broad, ill-defined, or unnecessarily inclusive. We recommend the definition is amended to include the words `for which the residents pay, or agree to pay, a capital sum as consideration'. The definition applies regardless of the legal nature of the right of occupation and regardless of the nature of the payment for the right of occupation (such as one lump sum or by way of periodic deductions). Most of us think the definition of `retirement village' should be of maximum inclusivity. Most of us agree the grounds for including properties or premises in the definition should focus on the financial arrangements and investment issues associated with residency. These arrangements, or a lack of clarity about how they work in effect, potentially represent the most risk to residents. The ACT member is concerned that the proposed new definition of a retirement village might unintentionally incorporate ordinary rent arrangements. Rest homes If a residential or hospital care facility in the village is occupied under the ordinary weekly fee system, it should remain excluded from the definition as the resident has no financial investment in the unit and his or her right to receive appropriate care services is protected under the Health and Disability Services (Safety) Act In the event the resident has made a capital contribution to a residential care unit or hospital care facility within a village, that Act will continue to apply in respect of the services but the financial protections under the Retirement Villages Bill will apply to the resident's occupancy interest. The bill therefore makes a distinction in this clause between those who pay a weekly service fee and have no financial interest in their accommodation and those who do have a financial commitment. We recommend an amendment to clause 6(3) to clarify that rest homes and hospital care institutions that are not part of a retirement village are excluded from the definition. Kaumatua flats We recommend kaumatua flats be included in the definition of a retirement village and that the clause excluding them be deleted. The bill as drafted file:///t /_Kim/bills/PDFs/updated/ txt (2 of 95) [9/05/ :48:22 p.m.]

3 contained a specific exemption for kaumatua flats, which could have created a loophole for operators attempting to evade complying with the provisions of the bill. If kaumatua flats are specifically excluded we are aware of the possibility that some operators might avoid compliance by establishing a complex that in form and substance is a retirement village as defined in the bill but that also in form meets the definition of a kaumatua flat. Registration One submitter recommends that an application for registration should require the written consent of any security holder or mortgagee. This would remove objections to effects on existing security holders. However, it would also mean that existing securities would need to be refinanced if consent was withheld and this raises issues of retrospectivity. We discuss this point later in our report in the section on memorials on titles. While the consent of an existing security holder is preferable, we agree this should not automatically prevent the registration of a village. In such a situation, the operator must promptly notify the statutory supervisor and every resident or intending resident of that refusal and its effect. We agree also that if consent has been refused by an existing security holder this must be included in the village disclosure statement. We recommend amending clause 13 to replace the requirement to renew registration annually with a requirement to lodge an annual return. We agree with submitters who propose that registration should be once and for all and this can be achieved by providing for an annual return rather than a requirement to renew registration. This means registration will be continuous unless suspended or the operator requests cancellation. Changes in circumstances and documentation Submitters also suggested that operators should be able to make minor changes to registered documents without notifying the Registrar. We agree and note that clause 16 requires material changes to be notified. We agree this presupposes that minor and non-material changes can be made without notification. Operators will still be required to notify both the Registrar and the statutory supervisor of any change in operator or controlling interests in either the operator or the village. As a further step we recommend that when an operator requests cancellation of registration, this cannot proceed unless all village residents have received independent legal advice on the effect of this and at least 90 percent of those residents agree in writing. Memorial on title We recommend an amendment to clause 21 to provide that if an existing security holder does not consent to an operator applying for registration, the provisions of clause 21 will not apply to the security holder's rights under the security during the remainder of the period for which it has been given. We recommend that in such circumstances, the operator be required to advise residents and intending residents that the lender concerned has not consented and that the protections provided by clauses 20 to 21 do not apply to the lender's security. Some submitters strongly opposed the retrospectivity of the memorial clauses as originally drafted, principally because they would have the effect of altering a lender's position in respect of loans already provided. We share those concerns and have sought to find a balance between protecting the interests of village residents without affecting existing security arrangements. In this file:///t /_Kim/bills/PDFs/updated/ txt (3 of 95) [9/05/ :48:22 p.m.]

4 respect we note that in the event of the memorial on title taking effect, clause 21(3) enables the holder of a security interest, or any receiver or liquidator of property, to apply to the High Court for an exemption from any requirement of clause 21(1). We also recommend that the provisions of clause 21 apply to any security entered into after 31 December 2002, because by that date (more than a year after the introduction of the bill) lending institutions would have had ample warning that such a provision could be enacted. The ACT member considers that retrospectivity is wrong in principle in this area and the provision may reduce the attractiveness of lending to retirement villages and ultimately increase costs to the resident. The New Zealand First member is concerned that if an existing lender withdraws its financing of a retirement village, residents will be put at risk by rising costs. Occupation right agreements An operator is required to submit the standard form of occupation right agreement for the purposes of registration. This will not prevent residents negotiating amendments to their occupation right agreement as long as the amendments are not less advantageous to the resident than the rights contained in the registered document. We also recommend that operators have the discretion to include in an occupation right agreement a provision that allows a majority to bind all residents (except where this differs from a specific proportion of residents whose consent is required in other parts of the bill). Disclosure statement Every retirement village will be required to supply intending residents with a disclosure statement that will contain all the key information on terms and conditions applicable to the village that an intending resident will need to make a sound decision on whether or not to buy into the village. This statement must conform to a standard template set out in regulations so that the information is complete and up front and expressed in simple language. This will also make comparisons between villages much easier. We recommend new Schedule 1A be added to the bill setting out the minimum matters to be included in the disclosure statement. We also recommend amendments to clause 10 to specify that the disclosure statement be complete (apart from personal information relating to residents) and that, in new clause 12(1A) it must disclose whether any existing security holder has refused to consent to the registration of the village. We note the purpose and intent of the disclosure statement and welcome this development. There is a need for more clarity amongst residents as to how their retirement village's operational costs are administered. A number of submissions argued in favour of statutory changes around financial matters which are more properly issues for negotiation in an occupation right agreement. Although the bill does not specifically mention marketing fees, depreciation or refurbishment costs, we expect such things to be covered in the disclosure statement. We are concerned that a lengthy disclosure statement could defeat its own purpose. If every detail about the village and how it operates in terms of collective and individual arrangements has to be outlined, a completed disclosure statement could be a lengthy document. We agree the statement should file:///t /_Kim/bills/PDFs/updated/ txt (4 of 95) [9/05/ :48:22 p.m.]

5 be limited to the main points such as the financial position of the village, its ownership and management structure, the nature of services available, entry costs, the cooling-off period, periodic charges and fees, the terms of occupancy and rights of alteration to those terms, exit costs and what happens on sale. Certification We recommend amendments to include new clauses 26(3), (4), and (5), which implement a form of certification. Under the proposed model, a legal adviser would need to certify that he or she advised an intending resident before the resident signed an occupation right agreement, and that he or she also explained the general effect and implications of that agreement before it was signed. Most of us further recommend the addition of new clause 26(6), which requires that the lawyer's explanation be given in a manner and in language that is appropriate to the age and understanding of the intending resident. National, New Zealand First and United Future members oppose new clause 26(6) on the grounds that it is inappropriate and unduly restrictive to state how a lawyer must give advice. The National and New Zealand First members consider that new clause 26(6) is incapable of being given effect to. The United Future member believes that the provision places too high an onus on lawyers by requiring them to make psychological assessments of their clients. Most of us think certification will be a useful additional safeguard for residents and intending residents and also the resolution of disputes involving the operator and the personal representative of a former resident. We agree with submitters that it is important for people to know as clearly as possible what they are getting involved in when they sign on with a retirement village. The advantage of certification is that all intending residents are given the opportunity to clearly understand the implications of the agreement they are entering into. It ensures that an oral explanation is given, by a legally qualified person, of matters that lay people may not readily grasp from their reading of the legal documentation and the disclosure statement. We note that most people already use a lawyer to transact their entry into a retirement village. While we are confident that a certification model in combination with a disclosure statement will be of benefit to residents, we recognise that an additional cost will fall directly or indirectly on intending residents. Most of us consider the potential financial burden on intending residents could be lessened if law firms were to establish checklists for the purposes of expediting the certification process. The ACT member believes that the anticipated benefits of certification are unlikely to outweigh the costs imposed on all, particularly given uncertainty about the extent of the lawyer's duty. Cooling-off period and cancellation for delay We recommend an amendment to clause 27(1)(a), to extend the cooling-off period from ten to 15 working days. The bill as drafted provides that an occupation right agreement must contain a provision allowing the resident to cancel the agreement without reason by notice given not later than ten working days after the agreement was signed by the resident. The purpose of our proposed extension to the cooling-off period is to provide more time for intending residents to discuss matters with their families. If the agreement relates to a residential unit that is to be built at a later date, and there has not been `practical file:///t /_Kim/bills/PDFs/updated/ txt (5 of 95) [9/05/ :48:22 p.m.]

6 completion' of the unit within six months after the agreed date for completion, then the agreement can be cancelled by the resident. Submissions supporting an extension to the cooling-off period also supported reduction of the cancellation for delay period. We recommend an amendment to clause 27(2)(b) to establish that notice of cancellation should be able to be given by a resident or any person authorised in writing by the resident to act on his or her behalf. We note that clause 27(6) allows an occupation right agreement to contain a cancellation for delay period that is more favourable to the resident than that conferred by clause 27(1). The ACT and National members consider that if residents have a right to cancel a contract within a given period, operators may not let them move in within that period. This may be irksome for residents who consider themselves fully capable of knowing what they want. They therefore consider that the cooling-off period should expire in 15 working days or on taking up residence. Cancelling an occupation right agreement An occupation right agreement can be cancelled or considered `void' if it is entered into when a village is either unregistered or its registration has been suspended, the offer was not made in the prescribed form, or the information requirements were not met. We consider clauses 17(4) and 17(5) create appropriate disincentives to deter operators from offering occupation rights while not registered. Some submissions from operators object to clause 17(5) on the grounds that refunds should not include payment for services rendered. We do not agree; clause 17(4) and clause 17(5) are designed to penalise operators who have not followed correct procedures. We recommend an amendment that would allow an operator who feels this is unfair the right to apply to the High Court for relief under the Illegal Contracts Act We agree that changes should be made to introduce a time limit on the right of residents to cancel such agreements. This should be any time within three years of the date the agreement was entered into. As drafted, clause 17(4) provides that `an occupation right entered into in contravention of subsection (3), section 24(1), or section 26 is voidable by the resident or intending resident at any time'. We do not consider that a resident should have this right for an indefinite period. All these provisions are now contained in new clause 29A. Code of Residents' Rights We recommend amending the Code of Residents' Rights to redraft it as a `best practice' guide or a summary of rights conferred by other parts of the bill. A number of the rights in the Code as initially drafted were of such a high level that an operator could have difficulty in complying with his or her obligations, or defending a resident's claim that the rights had been breached. As a consequence, we recommend references to the Code are deleted and replaced by language that clearly states the Code is no longer a stand-alone enforceable document but rather a summary of the minimum rights of a resident of a retirement village. We recommend the rights are directly aligned to the provisions of the bill and are reflected in the Code of Practice. They should now represent a list of basic rights to which the operator is obliged to give effect. This change to the Code will mean that it will no longer have overriding contractual force, and that a disputes panel will not have the power to amend an occupation right agreement to ensure compliance with it. We further recommend an amendment to Schedule 3 to include a brief statement file:///t /_Kim/bills/PDFs/updated/ txt (6 of 95) [9/05/ :48:22 p.m.]

7 addressing residents' responsibilities to the operator and to other residents. National and ACT members have concerns about the Code of Residents' Rights. These members have a general concern that the provisions of the Code are inappropriately open-ended and that the use of politically-correct language is open to misinterpretation of meaning and effect. National members also have a concern that the matters addressed by the Code belong more properly in secondary legislation. National members consider it undesirable to have such matters provided for in primary legislation. Right to be informed Clause 33 sets out a resident's right to be both informed of material changes affecting an occupation right agreement and a list of what constitutes a `material' change. These include matters that could impact on the charges levied, or the right to services or facilities. This includes requiring an operator to inform residents of any proposal to develop or redevelop the village (including any proposal to acquire contiguous land for development). We recommend extending this section to provide for residents to be informed of any proposal by the operator to suspend the village's registration, a request for cancellation of registration, an exemption to appoint a statutory supervisor, the appointment of a new statutory supervisor, and any exemptions from compliance with the Code of Practice. Some residents in retirement villages raised with us their sense of frustration at not being informed in a timely manner about changes proposed by the operator. This was with particular reference to prior consultation over the sale or disposition of the village or a change in management. We sympathise with residents over these concerns and, while we do not think it is appropriate to amend the bill to cover these situations, we do think the industry Code of Practice should include a process that ensures residents are consulted before sale or disposition of property or before there is a change in the management of the village. Statutory supervisors The bill requires each village to have a statutory supervisor, whose role (among other things) is to represent the collective interests of residents in respect of a dispute with the owner. The bill focuses the role of statutory supervisors around financial monitoring and high-level supervision. New clauses 38A-38D detail provisions applying in respect of the statutory supervisor. We discussed these at some length, in particular new clause 38B that enables statutory supervisors to make public statements to do with retirement villages, given the approval of the Registrar. We recommend new clause 38B be amended to enable the supervisor and the Registrar to have regard to the interest of existing residents, as well as potential or intending residents. Existing residents have a vital interest in the financial position and security of their investment. One submitter expressed concern that Schedule 4 does not require the statutory supervisor to be an advocate for residents, but instead allows for discretion. Clause 23 provides that if a receiver or liquidator is appointed, he or she must ask the statutory supervisor to represent the interests of residents in any negotiations that concern these interests. It remains for the statutory supervisor to decide whether he or she takes on this role. The submission from the National Council of Women stated `Our members are adamant each village needs an advocate they can trust to provide a listening ear for day-to-day concerns which may not always be of sufficient importance to file:///t /_Kim/bills/PDFs/updated/ txt (7 of 95) [9/05/ :48:22 p.m.]

8 warrant the attention of a statutory supervisor.' People in collective investment arrangements usually need an organising agent or representative when collective decisions are required on complex or legal matters. That role could fall naturally on the statutory supervisor. The bill does not provide expressly for this, but there is nothing to stop it becoming a regular feature of the deeds of supervision. We note however that the bill contains provisions for additional tasks to be given to statutory supervisors by regulations. Financial implications We recognise that a requirement for statutory supervision may have the most significant financial implications for some operators of any matter in the bill. Currently, the significant costs of statutory supervision are associated with the supervisor's involvement in minor disputes and in routine attendance at village meetings. The dispute resolution provisions and the management practices encouraged by the Code of Practice may reduce the need for statutory supervisors' involvement in these activities. One submitter stated that smaller villages will need some form of lower-cost or fully subsidised government-regulated protection, as the cost of having a statutory supervisor will impact more heavily upon residents. There are significant costs involved in statutory supervision and the implications for the smaller complexes is a matter we have considered at some length. We are advised that these costs can be limited if a number of villages in an area share the same supervisor. We propose amending new clause 37B to provide that the operator may not indemnify the statutory supervisor from liability where there has been gross negligence, bad faith, or willful misconduct by the statutory supervisor. Our view is that the operator is best able to limit the risk faced by the supervisor and should be first in line for liability. Approval and appointment We recommend amendments to clause 36 to remove the role of approving statutory supervisors from the Securities Commission. The Securities Commission advises it did not want to retain this role. We therefore propose that this function be undertaken by the Ministry of Economic Development (Companies Office). We recommend replacing `terms of appointment' in clause 10(2)(c) with `deed of supervision'. The deed of supervision includes such matters as the contractual rights and obligations agreed between the statutory supervisor and the operator. Under clause 10, the deed of supervision document will be lodged with the Registrar and may be released to any resident or intending resident. The process for appointing statutory supervisors under the Securities Act 1983 is longstanding and effective, and is substantially replicated in the bill. Several submitters argued that the operator should no longer have responsibility for appointing the statutory supervisor and that this should rather be undertaken by an independent body or party. Others made a specific proposal that the Retirement Commissioner should appoint statutory supervisors. We disagree with these submitters; the fact they are appointed and paid by the operator has no bearing on the independence of statutory supervisors, who must first be approved on the basis of their professional capabilities. New clause 37A(1) provides that the Registrar's consent is required for the termination or non-renewal of a statutory supervisor's appointment. This is qualified by new clause 37A(2), which states that such consent is not required in the event of the statutory supervisor having given one year's notice to the operator. We note that if the statutory supervisor leaves and is not replaced, file:///t /_Kim/bills/PDFs/updated/ txt (8 of 95) [9/05/ :48:22 p.m.]

9 the operator is in breach of the law and risks suspension. Exemptions The standard set by the bill is that each retirement village must have a statutory supervisor. We agree that in principle all retirement villages should be treated in the same way. However, most of us are persuaded that in appropriate circumstances an exemption might be granted. Accordingly, we recommend amendments to clause 37C to enable retirement village operators to apply for exemptions from the requirement to appoint a statutory supervisor. Clause 37 was specifically commented on in 22 submissions, several of which recommended provision be made for an exemption from the requirement to appoint a statutory supervisor. A submission from the Ruapehu Masonic Association Trust was particularly persuasive. This submission argued that complexes like the one it represented have no need for statutory supervision because they focus on service provision rather than profit and have: o o o significant financial strength and no debt given no security over the village's property had no major complaints in the past ten years. A retirement village which demonstrated successfully that it merited an exemption from the requirement to appoint a statutory supervisor, would need to have adequate capital reserves, no debt, and an excellent operational record. In such cases, it would seem that a requirement to appoint a statutory supervisor could impose costs on operators for unnecessary statutory supervision. We recommend that the conditions of exemption from the requirement to appoint a statutory supervisor be specified in regulation or imposed by the Registrar and that penalties relating to submitting a false or misleading statement or document for the purposes of exemption be added to the penalties and sanctions provisions. Applications for exemption would require submission of evidence to the Registrar of Companies that the village meets all the exemptions criteria. Dispute resolution We recommend a two-tier approach to dispute resolution processes. Our recommended changes are reflected in new clauses 40B, 40C and 40D, which set out the two types of dispute procedures: a complaints facility and dispute resolution. It is important to note the rationale for the lower-level complaints facility, which is an internal matter set up by the operator to deal with the lowest level of disputes. New clause 40C not only establishes the requirement for such a facility to be available in any retirement village, it also requires the operator to make its existence known to residents. We recommend amendments to Schedule 5 to specify that the Code of Practice must contain detail concerning the operation of the complaints facility. We had a concern that the higher-level dispute resolution process could have appeared to offer the only recourse for residents to take a complaint. This would have caused matters that could have been resolved at a lower level to be referred to the disputes panel. If matters cannot be resolved at the complaints facility level, either the operator or a resident can give notice that the complaint needs to be heard by a disputes panel. Only matters that cannot be resolved through direct discussions between the parties to the dispute should be referred to a disputes panel. file:///t /_Kim/bills/PDFs/updated/ txt (9 of 95) [9/05/ :48:22 p.m.]

10 Clause 41 sets out the types of disputes we envisage being referred to a disputes panel. We recommend the addition of new clause 41A, which allows an operator to give a dispute notice. A number of submissions asked that the operator be empowered to take a complaint to a disputes panel. We agree with these submissions; if a resident and an operator cannot resolve a dispute at a low level, either party should have the right to refer the matter to the disputes panel. Disputes panel We recommend an amendment to the effect that people to be appointed by the operator onto a disputes panel must first be approved by the Retirement Commissioner. The Commissioner would determine those who could become members of a disputes resolution panel according to the criteria in clause 43(2). We propose this amendment in recognition of the importance of a panel being, and being seen to be, impartial. Some submitters were not comfortable with the prospect of the operator appointing the panel, but we have confidence in the Retirement Commissioner's ability to select competent people for the pool of appointees. If bias on the part of a disputes panel member were to become apparent, redress would be a matter to be taken up with the Retirement Commissioner. We note that clauses 44 and 45 provide sufficient safeguards around the appointment of disputes panel members. These clauses set out the operator's responsibilities to establish the existence of any conflicts of interest and to secure the independence of disputes panel members. We recommend three further changes to the disputes panel provisions: o an amendment to clause 48A to allow panels to refuse to hear a dispute, on the basis of the matter under dispute being of a frivolous or vexatious nature or an abuse of process o an amendment to create further grounds to refuse to hear a dispute, on the basis that the matters are of a nature, legal complexity, or monetary consequence that the panel considers to be beyond its area of expertise This referral power is to be qualified by a requirement to hear the parties to the dispute on the proposal. o an amendment to clause 52(3) to allow either party to a dispute to have a right of appeal. United Future, ACT and National members supported the addition of a new clause to require the operator to give the statutory supervisor notice where the operator considers a dispute involves an issue that might affect: o o o a significant number of residents the rights and obligations of the operator under the deed of supervision the disposal of a residential unit. The operator shall also advise the resident when this notice is given. Most of us voted against the clause, which was put before the committee on the day of deliberation, on the basis of advice received. There is already provision for either party to a dispute to seek judicial review of a decision. However, this enables a review of the process of the decision-making body, not a review of the decision made. Accordingly, we consider it appropriate to allow either party to a dispute to also have a right of appeal. file:///t /_Kim/bills/PDFs/updated/ txt (10 of 95) [9/05/ :48:22 p.m.]

11 National, ACT and United Future members wanted to ensure that disputes panels took into account the precedent effect or flow-on for other residents as a whole. They argued for the addition of the statement: In deciding on a dispute, a disputes panel should take into account the need for consistency and the effect of the decision on other residents without affecting occupation rights under their occupation right agreements. Delays in sale or disposal of units The most frequent concern raised by residents of retirement villages and their families is in respect of the `exit payments' to be made after a person leaves a village or dies. One in three submitters raised the issue of disposal of units, many arguing that there have been unjustifiable delays in the onselling of vacant units. The industry Code of Practice, along with disclosure statements and occupation right agreements, should include information on exit payment arrangements. Proposal to address delays in sale or disposal of units We were invited by the Minister to consider a proposed process for dealing with delays in the sale or disposal of vacant units. The process is designed to respond both to situations where delays are unavoidable and to instances of unjustified delay. It is staged at three-monthly intervals, each of which involve the provision of new rights to the former resident (or the estate of a deceased former resident). If a vacant unit has not been sold or disposed of o within three months, the operator of the village must report at monthly intervals to the former resident on the steps that have been taken to market the unit, and progress made o within six months, the former resident has the right to request the operator to obtain an independent valuation to establish the appropriate price at which the unit should be marketed o within nine months, the former resident has the right to have the matter referred to a disputes panel. As drafted, the process requires several changes to the bill's disputes resolution provisions. The proposed role of the disputes panel in this area is to focus on whether there was a failure to meet obligations imposed by the former resident's occupation right agreement, the code of practice, or both. We were advised that the Retirement Village Association's initial proposal was for a focus on whether the operator was negligent or abusing residents. Submissions on the proposal We note that the proposal did not come to our attention until March Given our concern that there had been no opportunity for public comment on this topic, we resolved to invite comment from a range of submitters reflecting the different sectors of interest (including the Retirement Villages Association). Most organisations contacted in this enterprise responded. We then considered the nine submissions we had received on the delays in sale proposal. All of them supported the idea, but there were a number of points of disagreement, especially around the timeframe. The proposed process gives an effective one-year timeframe for both parties. The Retirement Villages Association presented an argument supporting an extension to the timeframe, while Grey Power suggested the timeframe be truncated and Parkwood Trust commented that the timeframe should remain as initially proposed. file:///t /_Kim/bills/PDFs/updated/ txt (11 of 95) [9/05/ :48:22 p.m.]

12 The Retirement Villages Association submission acknowledged there has been a public perception that operators do not market units in a timely way, while noting that some complaints have been in respect of villages that are not members of the Retirement Villages Association. The Association is concerned that there not be any entitlement on the part of a resident to be paid out as of right. We were advised by officials that the concerns of the Retirement Villages Association have been accurately identified and met in the proposed amendments. The Grey Power submission expressed concern that the disputes panel as defined is completely under the operator's control, and recommended provision be made for a separate independent dispute panel for this particular problem funded by the operator. The issue of whether the disputes panel having the power to make a `buy-back' order would create contingent liabilities for operators did not receive much attention in the submissions. Ernst & Young submitted that a contingent liability is not automatically created, and that on a case-by-case basis, operators will need to note a potential liability if a referral to a disputes panel appears likely. Committee recommendation on the proposal Following our above-mentioned consultation with selected stakeholders, most of us recommend amendments to give effect to a formal process for dealing with unjustified delays in the sale or disposal of vacant units. National members are concerned that the proposed amendments are not within the scope of the bill and note that the proposed process for dealing with delays in the sale or disposal of vacant units is a very significant shift in the bill, and one that was introduced at a late stage in proceedings. National and ACT members are concerned about the broad discretionary powers of the disputes panel around delays in the sale or disposal of vacant units. The ACT member considers that the right could destabilise some villages if early-exiting residents at the expense of the operator financially weaken the operator for remaining residents. The member would have focused the proposed process on structures where the operator can benefit from delay and so has a conflict of interest. The member thinks this could favour larger operators who would be more capable of managing the risk. The member proposes a simpler solution to such delays would be to have penalty interest run after a given period. To be comfortable with the proposed process, the United Future member would need to be satisfied that there was: o o adequate consultation around compulsory buyback provision for the resident to market his or her unit. Industry Code of Practice As set out in Schedule 5, matters to be specified in the Code of Practice include minimum requirements for incorporation in any occupation right agreement in relation to: staffing, safety and personal security, fire protection and emergency management, transfer of residents requiring greater care, meetings between residents and operators, opportunities for participation in the complaints facility, accounts, maintenance of existing units and construction standards for new ones, and the termination of occupation right file:///t /_Kim/bills/PDFs/updated/ txt (12 of 95) [9/05/ :48:22 p.m.]

13 agreements. We recommend amendments to clauses 65 and 66 to provide that the Retirement Commissioner must publicly notify: o o o it o that a code or variation of a code is being considered for approval where copies of the draft code or variation may be obtained that interested groups of persons or bodies may make recommendations on the time for such recommendations to be made. This notification will provide an opportunity for members of the public to make representations to either the Retirement Commissioner or Minister, as appropriate. Over one-third of submissions received relate to Schedule 5: `Matters to be included in code of practice'. The main concerns are: o what, if any, constraints there should be on the Minister in approving, or declining to approve, a submitted Code of Practice and preparing a code o whether, and to what extent the Code of Practice will have a retrospective effect. Constraints on the Minister Most of us recommend no change to the powers of the responsible Minister under clause 65 with respect to approving and publishing an industry Code of Practice, as we consider they are not inconsistent with similar ministerial powers under a range of statutes. As drafted, clause 65 places on the approving Minister obligations that are consistent with those imposed on ministers in other code-related statutes. Placing any further or different requirements on the Minister responsible for the Retirement Villages Industry Code of Practice would therefore be setting statutory precedent. Most of us do not agree with submitters who express concern that the Minister's unfettered statutory power exposes the retirement village industry to unacceptable uncertainty as to the nature of the minimum requirements to be imposed by the Code. Although Schedule 5 does leave open to a Minister the power to introduce a range of requirements, most of us consider it can be reasonably assumed that the responsible Minister will seek to approve a Code that is workable, sustainable and justifiable from a social and public policy perspective. The ACT member remains concerned about the prospect of industry capture of the Code of Practice, given the lack of criteria for the Minister. The member believes the planned regulation-making process is particularly susceptible to advocacy by dominant groups in the industry for `one size fits all' rules. They could be hard for new entrants to master and for smaller and unsophisticated competitors to comply with. The ACT member recommends an amendment to provide additional grounds for the Minister to take into account in consideration of the Code of Practice. In summary, these are: o that the Code be not so onerous as to act as an undue barrier to persons of modest means becoming retirement village residents o that the Code be flexible enough to allow for retirement villages offering a range of services, facilities and pricing structures. file:///t /_Kim/bills/PDFs/updated/ txt (13 of 95) [9/05/ :48:22 p.m.]

14 Retrospectivity of the Code of Practice All of us except the ACT member consider a one year transitional period for all agreements to comply with the Code of Practice is reasonable for both operators and existing residents. For operators, it provides an extended period within which financial matters can be rearranged if necessary. For residents, a one year compliance period will provide extended notice of any Code-related compliance costs that they will be required to contribute toward. All of us except the ACT member also recommend the addition of a power to apply for an extension to the transition period, as a safeguard in the event that it could seriously undermine a village's financial stability. These members think an exemption from the transition period could be accorded for existing contracts in specific extreme circumstances. However, one of the principal protections of the bill is to ensure that all retirement villages are bound by the same provisions relating to the matters the Code of Practice contains. Therefore, the standards set by the Code must, over time, be reflected in or apply to all occupation right agreements. All of us except the ACT member recommend that the Code of Practice should have effect as regards any occupation right agreement only after the one year transitional period, except where operators choose to incorporate its provisions at an earlier date. Given our recommendation that there should be a one year compliance timeframe for existing occupation right agreements, there would be a number of practical difficulties if new occupation right agreements had to comply immediately. All of us except the ACT member also recommend that the Registrar of Companies be responsible for the administration of exemptions from compliance with aspects of the Code of Practice, for any period the Registrar thinks appropriate. Advertisements We recommend a move away from a certification model for advertising through new clauses 24 and 25. We propose that the certification provisions in clause 25 be replaced by a new clause, which states that `all practicable steps' must be taken by the operator and promoter of the village to ensure that a given advertisement is not misleading or deceptive before publication. We considered it was unnecessarily onerous to have a requirement to certify compliance for advertisements. New clause 24(3) allows for limited pre-registration advertising by a developer, providing that such advertising meets specified requirements. The bill as drafted was unduly restrictive and potentially damaging for operators, as it would have effectively prevented them from gauging public interest in a proposed or planned retirement village development. Role of the Retirement Commissioner The Retirement Commissioner is to monitor the effects of the Retirement Villages Act and the regulations and code of practice made under it. The commissioner also has advisory and educative roles with respect to retirement village issues. The commissioner approves the body of people who may become members of a disputes resolution panel according to the criteria in clause 43(2). Some submitters proposed the commissioner also be responsible for appointing statutory supervisors, but we do not agree; as noted earlier, we are satisfied that the current process for appointing statutory supervisors is an effective file:///t /_Kim/bills/PDFs/updated/ txt (14 of 95) [9/05/ :48:22 p.m.]

15 one. National overview National members have worked hard to improve the bill during the course of consideration. They now support the bill with the qualifications noted in the report. We are however concerned with two aspects: o the possible consequences of significantly increased compliance costs for some operators o the likely consequence that smaller operators will withdraw from the industry, or be dissuaded from entry. If these two concerns are realised within a relatively short timeframe, we would hope and expect that the Government would move to make changes to the legislation to ameliorate those concerns. ACT Minority view ACT considered this Bill was badly conceived as introduced but with relevant professional experience the ACT Member worked hard to improve it. Nevertheless ACT cannot recommend that the Bill proceed. Retirement villages have evolved to combine elements of property investment, of tenancy, of co-operative or communal living and of life insurance. Residents may enter at a price which is lower than their share of the market value of the underlying property and the services they will be entitled to. In return they commit to meet collective cash outgoings. The balance of the cost, and the return to the promoter/manager/operator can be derived from the difference between their entry cost and what residents get when they exit, by sale or death. The amount "withheld" from the exit return may depend on how property prices have performed since entry (inflation included) and of course time since entry. It may be as much as 20% or more of the intrinsic value. Because that "deduction" can vary depending on how long the resident lives it has elements akin to life insurance. Those who live longer will in effect "subsidise" those whose stay is shorter. The Bill may improve the rights of some of the 4% of elderly who can already afford to live in retirement villages. They are comparatively privileged. In effect the Bill pulls up the drawbridges around retirement villages by creating new risks and rules for those defined as "operators" of retirement villages. They will be reflected as new costs because no one bears risks for long without a return. For many villages the "operator" is effectively themselves, collectively. Risks for the "operator" become risks and costs for all residents. For example, management obliged to pander to a vexatious complainant use time taken from other tasks. Vainly regulating for disclosure to "protect" the least capable resident could expand documents, and procedural hurdles, to the cost of all others. The Bill could allow the major operators in the industry to collude in gold plating the codes. For example the Bill assumes that codes will dictate minimum staffing requirements, and qualifications. These could be used to make "part time" or small-scale developments untenable, and protect existing operators from the competition that comes from new entrants (such as builders branching out, co-operatives or small church inspired schemes). New personal liabilities may discourage innovators, people who are willing to file:///t /_Kim/bills/PDFs/updated/ txt (15 of 95) [9/05/ :48:22 p.m.]