Retirement Villages - Exit Entitlements

During the course of managing various files in my deceased estates practice, perhaps the most problematic issue which arises when dealing with retirement villages relates to when exit entitlements are paid to the estate of a deceased resident.

Frequently, people who enter retirement villages are obligated under their resident contract to pay an up front lump sum to the operator of the retirement village (“operator”).  This up front fee is variously described, amongst other things, as a “licence fee”, “loan”, “ingoing contribution” or “premium”.

Often, executors and beneficiaries are forced to wait for prolonged periods before the amount due to the estate (generally after payment of refurbishment, sinking fund and management fees etc) is paid.

Case Study

At the moment, I am acting for an executor of a deceased estate whose mother was a resident of a retirement village.  The deceased’s resident contract provides that if a licence to occupy the retirement village residence is cancelled (by death or otherwise) after the expiration of the resident’s cooling off period, then the date by which the “loan” is repayable is the earlier of the following:

(a)  10 business days after the date of settlement on which an incoming resident acquires rights of occupation to the residence; or

(b)   the date that we advise you by notice in writing; or

(c)   the date falling 5 years after cancellation of your rights of occupation (i.e., in this case, the date of death).

The retirement village is purportedly attempting to re-licence (sell) the residence.  The family of the deceased are sent regular reports from the operator, setting out their marketing strategy etc, to “sell” the residence.

Under the resident’s contract, the estate could wait until 5 years after the date of death for the repayment of the “loan”.

Understandably, this is a source of great frustration for the family of the deceased.

Current Legislation

Retirement villages are governed by the Retirement Villages Act 1987 (SA) (“1987 Act”).  Section 19 of the 1987 Act states that where a resident contract provides for the “premium” to be repaid in whole or in part upon the happening of a contingency, and the contingency occurs, then the premium is recoverable as a debt from the retirement village.

Therefore, on the facts of the case study above, the “contingency” would be one of the three criteria set out above as to when the operator is obliged to repay the “loan”.

In short, the 1987 Act does not assist to expedite the repayment of the “loan” in circumstances such as those set out in the case study.

New Legislation

The Retirement Villages Act 2016 (SA) (“new Act”) has received royal assent but has not yet come into operation.  It is unclear when the new Act will become law.

The new Act provides that an operator must pay an exit entitlement within 18 months after the date when the resident ceased to reside in the retirement village.

Under the transitional provisions for the new Act, the relevant section with governs exit entitlements (section 27) will apply to a resident who ceased to reside in a retirement village before the commencement of section 27 of the new Act, but the 18 month time period will, in those circumstances, commence on the date of the commencement of the operation of the new section 27 of the legislation.

Practice Tip

Whilst the new Act does potentially bring forward the time within which an operator must pay an exit entitlement, it is nevertheless recommended that legal advice be obtained before a person enters a retirement village in order to negotiate a reasonable time within which the operator is obliged to pay the exit entitlement.

Charles Beresford

19 April 2017