Last updated 5 September 2016
Once termination has occurred, the process for resale of the resident’s unit starts.
The Retirement Villages Act 1999 (Qld) (Retirement Villages Act) contains extensive provisions in relation to reselling the right to reside in the unit. The resident and the operator must agree in writing within 30 days of the termination on the resale value of the unit. If they cannot agree on a resale value, the operator must obtain a valuation from a valuer within a further 14 days (s 60 Retirement Villages Act).
When the right to reside in the unit is being sold, certain reinstatement work may have to be done to the unit. The unit must be reinstated to a marketable condition taking into consideration the condition of the unit when the resident moved into it and the general condition of other units in the village that are comparable to the resident’s unit.
If the operator and the resident cannot agree on the work to be done, an itemised quote has to be obtained from a qualified tradesperson.
If the resident caused deliberate damage or accelerated wear to the interior of the accommodation unit, the resident pays for the reinstatement work.
In all other cases, who pays for any reinstatement work will depend on when the resident entered into their residence agreement with the operator (for more information see s 62 of the Retirement Villages Act).
If the scheme operator must pay the cost of reinstatement work, it is to be paid out of the capital replacement fund.
Selling the unit
If the unit is not sold within six months from termination, the resident may engage a real estate agent to sell the right to the unit (s 64 Retirement Villages Act). In that case, the resident must pay the costs and commission of the real estate agent.
The operator is to inform the former resident of each offer to purchase promptly and, if requested by the resident, the operator must provide monthly information about sales enquiries, steps taken to promote the sale and details about all other units for sale in the retirement village.
The costs associated with the sale of the unit are to be paid by the operator and the resident in the proportion which they each share in the sale proceeds. If the scheme operator accepts an offer that is less than the agreed value, the exit entitlement (the amount paid to the outgoing resident) is based on the agreed resale value. If a resident accepts an offer that is less than the agreed value, the resident’s exit entitlement is calculated on the amount of the offer (ss 66, 68 Retirement Villages Act).
In any event, an operator may refuse to accept an offer if the scheme operator believes that the unit is not suitable for the prospective resident (s 69 Retirement Villages Act).
It should be noted that there is no compulsory buy-back provision within the Retirement Villages Act. This means that the operator is not obliged to buy back the outgoing resident’s unit, and, unless the residence contract provides otherwise, a resident will have to wait until the unit is sold before they are entitled to receive monies owing to them.
It is not uncommon for not-for-profit or church-based operators to include in their residence agreements a provision which states that they will pay out the resident’s entitlements after a certain period even if the unit has not been sold. A careful reading of the residence agreement will tell if this is the case.
Monies payable on termination or resale of the unit
When a resident has terminated the residence agreement and the unit has been resold, the resident will normally be required to pay an exit fee to the operator from the sale proceeds (s 15 Retirement Villages Act). The method used to calculate the fee must be set out in the Public Information Document (PID) and the residence agreement.
The exit fee (which used to be called a deferred management fee) is typically calculated as a percentage of either the ingoing contribution originally paid by the resident or the ingoing contribution that a new resident pays with the percentage increasing with the length of time that the resident has resided in the unit.
There is no regulation of the amount of the exit fee and it varies considerably between villages. However, the application of the exit fee calculation must comply with s 53A of the Retirement Villages Act. Section 53A applies to all residence contracts that require the resident to pay an exit fee that is calculated having regard to the length of time the resident resides in their unit, and it operates in the following way:
- For all residence contracts entered into after 1 March 2012, the exit fee must be worked out on a pro rata daily basis and the scheme operator and resident cannot agree otherwise.
- For all residence contracts entered into before 1 March 2012, the exit fee must be worked out on a pro rata daily basis unless the contract provides a way of working out the exit fee that is not on a daily basis.
The working of s 53A has created some confusion as it is not clear exactly what is required for an exit fee in a pre 1 March 2012 contract to be interpreted as providing ‘a way of working out the exit fee that is not on a daily basis’. The exit fee calculation set out in the residence contract should be carefully examined to ensure that the methodology is understood and applied correctly, taking into account this new legislative requirement.
The exit fee is normally deducted from the monies paid by the new resident (an exit entitlement), which is payable to the outgoing resident. The exit entitlement represents how much money the resident can walk away with once they leave the unit and the unit is resold. There is no regulation on how much the exit entitlement can be.
Some villages allow a person to receive, as part of the exit entitlement, any capital gain made on the resale of the unit or at least to share in that capital gain with the operator. Conversely, they may also require a resident to take any capital loss on the resale. Reading the PID or the residence agreement will reveal how the particular village deals with these matters.
The operator must pay the exit entitlement to the resident or their estate within at least 14 days after the right to reside in the unit has been sold (s 63 Retirement Villages Act). A statement of how the exit entitlement has been worked out must be given to the resident at the time it is paid.
If a resident leaves the village or dies, the resident (or the resident’s estate respectively) will also be liable for the following charges from when the resident vacates the unit (s 104 Retirement Villages Act):
- general services charge until the unit is sold or 90 days after the resident vacates the unit (whichever is the sooner). After the 90 days, the resident and the operator share the charges in the same proportion as they share in the gross sale proceeds of the unit until the unit is sold or nine months have elapsed since the resident vacated the unit. After the nine months, the resident no longer has to pay the charges
- personal services charge, but only for 28 days after the vacation of the unit (s 102).
The above provisions in relation to the general services charge apply to all residents. Many residence agreements also provide for payment of other monies to the operator on the resale of the unit, such as the operator’s legal costs, an administration fee and a fee for the surrender of the lease if that is the basis of the resident’s tenure.