On 2 August 2023, the Government announced that it was undertaking a review of the Retirement Villages Act 2003 (‘Act’). The Government stated that the goal of this review was to implement changes to the Act and the wider retirement village sector, to improve support and achieve fairness for consumers. Consumer and resident groups welcomed this announcement and will be pleased to see that their lobbying has borne fruit in an election year.

As the first step of its review, the Ministry of Housing and Urban Development (‘Ministry’) released the ‘Paper of the Retirement Villages Act 2003: Options for Change Discussion Paper’ (‘Paper’). The Paper is based on the very solid ground work conducted by the Retirement Commission and proposes options for changes to the regulatory framework.

This article provides a high-level summary and analysis of the main changes proposed by the Paper.

Summary of proposals

The Paper categorised proposals into three phases, based around the lifecycle of retirement village living: moving in, living in, and moving out. Topics were organised under the three phases as follows:

• Phase 1 – Moving in: disclosure statement, occupation right agreements (‘ORAs’), moving from retirement village living into aged residential care, minimum building standards for villages, treatment of capital gains/losses, Code of Practice and Code of Residents’ Rights, offences and penalties, application of the Real Estate Agents Act 2008;
• Phase 2 – Living in: maintenance and repair of operator-owned chattels and fixtures, complaints and disputes regime; and
• Phase 3 – Moving out: repayment of capital sum when a resident moves out, outgoings and other fees, repayment of fixed deductions (deferred management fees).

The Paper also considered other topics such as insurance cover for retirement villages, security for residents’ capital sums, culturally responsive services, roles of government agencies in the retirement villages system, and the operation of the Retirement Villages Register.

The Paper recognised that a small percentage of Māori currently reside in retirement villages, due to a range of social factors stemming from historical cultural alienation and land dispossession. The Ministry stated that this imbalance must be addressed outside the scope of the current review to ensure it is dealt with effectively. It will be very interesting to see how this work develops, particularly in a sector that is predominated by for profit operators.

Breaking down the Paper

Phase 1 – Moving in

The moving in phase proposed to change the regulation of disclosure statements and ORAs. Intending residents of retirement villages must be provided these documents, along with the Code of Practice and the Code of Residents’ Rights.

Disclosure statements

A disclosure statement must outline the main terms of the offer for the intending resident to buy into a retirement village. The duty on operators to disclose the main terms of an offer protects intending residents by ensuring transparency.

The Ministry stated that intending residents generally find disclosure statements hard to understand in practice, as they are often extensive and written in legalistic language.  The Paper also recognised that undertakings made in disclosure statements can be hard to enforce because disclosure statements are not contractual documents. The enforcement of disclosure statements has generally relied on claims of misrepresentation by residents at time of entry into their ORA, which practice has shown us can be hard to establish.

The Ministry proposed to address these issues by introducing prescribed requirements for disclosure statements and either retaining the current one-document form or splitting the disclosure statement into two separate documents: a Village Comparison and a Retirement Village Information Statement.

A Village Comparison would outline the key terms of a retirement village offer, including the fees and costs of living in the village – it should enable comparison with other competitor villages. The Retirement Village Information Statement would provide general information about the retirement village. Both documents would be required to be in a standardised form and be subject to maximum page and word limits.

The one-document option would retain the current disclosure statement but introduce a standardised format of no more than fifteen pages and a maximum of six thousand words. The hope is that this should improve readability, understanding, and thus competition, by enabling direct comparison between competitor villages. Residents should then be able to select the most suitable option for them.

However, this may pose a compliance burden for operators and decrease flexibility of terms included.  Innovative operators who want to challenge the market may find it difficult to attract attention in such a homogeneous world.

Great care will need to be taken in the drafting of the law reforms to ensure a greater degree of comparison is enabled but not at the expense of innovation – otherwise a new issue will be created down the road.

ORAs

The Ministry found that intending residents experience similar issues with ORAs as with Disclosure Statements. To address these issues, the Ministry proposed introducing a fully standardised ORA form or a partially standardised ORA. The Ministry stated that either option would increase accessibility for prospective residents by simplifying ORA documents and ensuring consistency across the sector.

The Ministry stated that it is unclear whether the remedies for ‘unfair contract terms’ under the Fair Trading Act 1986 provide sufficient redress for ORAs. The Paper stated that the Government is seeking feedback on whether the Act or regulations should include a specific power to declare a contract term ‘unfair’.

We applaud these developments. While ORAs have come a long way in the last 25 years or so and the use of plain English is widely accepted, there remains room for simplification but again not at the expense of innovation.  A partially standardised ORA, if well drafted, could balance these factors.

False, misleading, or confusing statements

The Ministry proposed introducing improved regulatory tools for addressing misleading, confusing or false statements made by retirement village operators. The Ministry stated that such regulatory tools could involve simplifying the process for residents to make a complaint against an operator for false or misleading statements made to a prospective resident.

The Paper indicated that the Government is also considering whether to strengthen or amend the power of the Registrar to take action against an operator where they believe that an advertisement or document is likely to mislead or confuse.

The Ministry suggested the Act be amended to ensure that if a term in an ORA is inconsistent with the information contained in a disclosure document to the detriment of the resident, that term should be interpreted, as far as is practicable, in favour of the resident.  Given the contractual imbalance between an operator and resident, we agree with this development.

Comments

A standardised form of disclosure statements and ORAs would improve fairness in the sector as this would enable prospective residents to efficiently compare key terms of different offers to determine their most suitable option. The two-document proposal, involving the separation of disclosure statements into a Village Comparison and a Retirement Village Information Statement, would further assist residents in this process.

The standardisation of disclosure statements and ORAs may pose a compliance burden to operators but in our view not unduly so. A degree of standardisation is desirable to address issues currently experienced by prospective residents but we remain concerned that there will be a long term impact to innovation and competition if the proposed changes eliminate or decrease flexibility in the terms that operators are permitted include and thus how they compete with each other for residents.

It is also desirable for improved regulatory tools to be implemented in order to address misleading, confusing or false statements made by operators. Under the current regime, it is difficult for residents to make a complaint against an operator for making false or misleading statements. It is important for this power to be readily available to current and prospective residents, who are generally most affected by such statements.

Phase 2 – Living in

Maintenance and repair of chattels and fixtures

The Ministry identified that there is uncertainty under the current regime as to who is responsible for the maintenance and repair of operator-owned chattels and fixtures. The Paper proposed assigning the legislative responsibility for maintenance and repairs to the chattel/fixture owner, except where a resident or their guest causes intentional or careless damage or loss. Under this proposal, operators would be required to meet the cost of upgrading operator-owned chattels or fixtures where they wear out.

The Ministry suggested amending the legislative definition of ‘retirement village property’ to specifically include operator-owned unit chattels and fixtures, and including a requirement for operators to provide a list of operator-owned chattels and fixtures and the condition of these items to intending residents. The Paper stated that assigning the legislative responsibility for maintenance and repairs of operator-owned chattels and fixtures would improve fairness for residents.  Once again, the devil will be in the detail and also how existing retirement villages transition to these arrangements in a manner equitable for operator and resident. A skewed risk (and thus cost) allocation by the Ministry may initially impact operators but in the medium to long term it is likely that any pain will be passed to residents through the ORA fee structure.

Dispute resolution

The Paper found that, according to Retirement Commission investigations and reports, the current number of resident complaints may not accurately reflect resident satisfaction levels. The Paper stated that this disparity could be the result of residents being reluctant to make a complaint directly to a village operator, as is required under the existing dispute resolution process. The Paper stated that the imbalance of resources and information between operators and residents is not addressed by the current regulatory framework. Operators are more likely and able to obtain legal advice and representation during the dispute process. Having said that, our recent experience has been residents are increasingly likely to obtain legal advice and representation during the dispute process as well. The imbalance may not now be as great as has been suggested (or that it previously has been).

The Paper proposed two options for a new dispute resolution scheme: a scheme administered by an appointed dispute resolution provider or a scheme administered by a commissioner. Under either option, formal complaints would be made to the scheme administrator, rather than to a village operator. The Ministry suggested that the new dispute resolution scheme be funded by operators via an annual fee, with increased fees for retirement villages against which a complaint is made and accepted.

Comments

It is desirable that the legislative responsibility for the maintenance and repair of operator-owned chattels and fixtures fall to the operator. The operator retains the ultimate benefit of these chattels and fixtures as the ultimate owner. The Ministry’s suggestion to include exceptions where the resident, or a guest of the resident, causes intentional or careless damage or loss will provide necessary protection for operators. We applaud this development but trust that the Ministry will not push this too far and overcorrect – which would ultimately cost residents.

The dispute resolution regime could benefit from change, particularly in relation to the complaints process. It does not seem effectual for residents to complain directly to an operator in all circumstances, due to the fact that both parties will likely continue their relationship post-resolution of the complaint.

However, introducing a provider-administered scheme could create unnecessary logistical complexity within the complaints process.  On this (and other points) we expect statutory supervisors of retirement villages to have considerable input. Is there a need for a provider-administered scheme if statutory supervisors (who already know the villages they supervise) can step up to the plate?  Or do supervisors consider this is not a core area of expertise for them or that it interferes with their broad duties to all residents of the village and a provider-administrator scheme is a better option (but such a provider will not know the village or circumstances as well as the supervisor and may cost more as a result of having its own separate business structure).  We would encourage all interested parties to consider this very carefully before settling on a course of action that could lead to increased costs.

Phase 3 – Moving out

Repayment of a resident’s capital sum

Under the current regime, retirement village residents pay a capital sum to the operator for the right to live in a retirement village. This capital sum is then paid out to the resident, or their estate, upon exiting the village. Operators are not required to repay this capital sum until the vacated unit has been re-licensed to another resident.

The Ministry found that the current regime enables operators to maintain the interest-free use of former residents’ capital sums until the repayment is made. The Ministry suggested introducing either a mandatory repayment timeframe or an interest payment on capital sums, or both, to address this issue.

Stopping charges for outgoings and other fees

Retirement village residents are currently charged for personal services and outgoings. Personal services are services which a resident may elect to engage, such as laundry and cleaning. Outgoings are costs relating to the operation, management, supervision, and maintenance of a retirement village as a whole and are recovered from all residents as agreed in an ORA.

Under the current regime, operators must immediately stop charging an exiting resident for personal services on the date that resident exits the residential unit. However, the operator is entitled to continue charging outgoings to exiting residents until the unit has been relicensed.

The Ministry found that the practice of requiring former residents to continue to pay outgoings is unfair as former residents receive no benefit from the services to which the outgoings relate. Consequently, the Paper proposed that operators should cease charging exiting residents outgoings either immediately on exit from a retirement village or very soon after their unit has been permanently vacated.

Comments

It would be beneficial to introduce a mandatory repayment timeframe for residents’ capital sums. Many villages already do this. The current practice of some operators retaining this value without a set repayment deadline is an unnecessary disadvantage to former residents of those villages. It is important to recognise the administration required by operators in relicensing a unit, along with the fact that relicensing a unit may be difficult. However, it does not follow that previous residents should bear this burden. The same logic applies to the requirement to cease charging outgoings at the point that a resident has permanently exited a unit. This may increase the capital requirements of an operator to meet these obligations (which will likely eventually be passed onto residents) but a number already do and we consider the cost worthwhile for the peace of mind it brings residents and their families.

Conclusion

The Paper demonstrates not only the Government’s desire to address issues and imbalances under the current regulatory framework but also to look to the future of the sector. With life expectancy rapidly increasing and the population steadily aging, the need for cohesive and robust legislation for the retirement village sector will continue to grow.

The changes suggested by the Paper are, on balance, positive and would likely increase fairness and transparency within the retirement villages sector. Most importantly, the proposed changes seek to ensure that residents are sufficiently protected under the legislation. However, care will need to be taken to ensure a balance is achieved across all interests but particularly of the resident and the operator.  It will certainly be interesting to see what other interested parties, such as the statutory supervisors and Trustee Corporations Association have to say.

The Paper invites a significant amount of feedback. All parties with an interest in the retirement village sector should provide their input to ensure that the updated legislation accurately reflects their needs as stakeholders. The consultation period for the Paper closes on 20 November 2023.