Retirement village residents and owners square off over who gets the capital gains

Tuesday, 16 March 2021

Peter Carr, president of the Retirement Villages Residents Association of New Zealand, says residents want to level the playing field with retirement village owners.

Retirement village residents have put pen to paper and fingers to keyboards in their hundreds to back a major revamp of the law governing retirement villages.

A key bugbear up for debate are residents, or their families or estate, not sharing in the capital gain on units when the residents pass away or go into care. Most village owners keep the capital gain when the unit is resold.

President of the Retirement Villages Residents Association, Peter Carr, said 98.5 per cent of the 2000 responses to their survey of members supported a major review of the Retirement Villages Act 2003.

Carr described the act as “ancient history” and “an ass” while Retirement Villages Association chief executive John Collyns, representing owners, called it “world-leading and rock solid”.

Retirement village residents want to share in the capital gains of their units. Most villages keep all the capital gain.

* Proposal to make retirement villages share capital gains with residents

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A full review of the legislative framework for retirement villages has been recommended by new Retirement Commissioner Jane Wrightson who published a white paper in December on it. The legislative framework includes the act, two codes and regulations.

Peter Carr, pictured talking to members of the Retirement Villages Residents Association, says retirement village owners will fight “tooth and nail” not to give residents a share of capital gain.

Key issues for residents, who these days tend to enter retirement villages in their mid 70s, are a share of capital gains, and a limit on how long their estate or their families have to pay weekly service fees after they have passed away or gone into care for units that were slow to be sold to new residents.

The Retirement Commission expects to receive about 3000 submissions, more than half from residents, on the review. It already has 1400 submitted online and via email, and the residents' association had 1680 hard copy submissions from residents to deliver to it, a spokesperson said.

Most residents in retirement villages pay an upfront lump sum for a licence to occupy their unit and then pay weekly fees for amenities like a café and library, rates, insurance, property maintenance and other costs to run the village.

When they leave they get back their original sum minus 20 per cent to 30 per cent of “deferred management fees” for other costs to run village.

When the operator sells the unit, which moves in line with the local property market, the operator gets all the capital gain. Carr said only about 17 per cent of villages shared the capital gain.

Sharing capital gain was “a very, very big issue” for residents. The gain on many of them could be more than $250,000.

“So our argument is that some of the capital gain, just some, should be shared.”

“We’re not greedy, we’re not demanding. We’re saying ‘hey level playing field, fair environment, let’s share the capital gain’.”

The owners would “fight tooth and nail” not to let that happen, Carr said.

“It’s important they succeed commercially, and we’re totally in support of that, we just want some of the ways in which they are interpreting the act done on a more level playing field.”

Retirement Villages Association chief executive John Collyns says if residents want a share of capital gains they will have to share other costs and risks of running and owning a village.

Another key problem was some operators continuing to charge weekly fees until the unit was sold after the resident had gone into care or passed away. The better operators stopped that once families moved the furniture out.

Others keep charging, some over a year, “a weekly fee you pay for services you can’t enjoy because you’re six feet under the ground”.

The law allows them to do that. “This is what we are saying, the law is an ass.”

Refurbishment of the units before resale took on average more than five months and some owners did not hurry because they were building new units and wanted to sell those first. Meanwhile, they were still hanging on to the capital put in by residents when they first bought a licence to occupy.

Carr said the act passed in 2003 when residents had no advocacy organisation like the residents' association. It was shaped by what operators wanted.

The residents’ organisation has been talking to the Government and the Retirement Commission for two years about issues it wanted reviewed and “hopefully rectified”. The Government was starting to listen.

The consultation period on the review ended two weeks ago but the Retirement Villages Association has asked for an extension until March 31 to complete its submission.

Chief executive John Collyns said if residents wanted a share of capital gains then they would have to share the risks and other costs as well.

Residents of Summerset retirement village in Rototuna were upset last month that management would not allow them to keep a grandfather clock that was made and donated by one of the residents. Summerset management said residents were allowed personal items in their units but not in the common room used by the villages’ 300 residents.

If units were leaky or had storm damage or had earthquake damage and general wear and tear, “none of that costs the residents a cent because they have purchased an occupational rights agreement to live in the village”.

Those costs were covered by the capital gains on the resale of units which the operator kept and the resident was able to enjoy an entirely maintenance-free life in the village.

“If we share capital gain then the residents would also have to share the cost of renovation, the cost of making good after storm damage, the cost of rebuilding something if it’s got weathertight issues, all that sort of stuff. We know the residents don’t want to do that.

“They actually move to the village for safety and financial security so that’s why villages by and large don’t share the capital gain because it reflects the operator’s risk of providing the village in the first place.”

“But when you’re 85 you don’t actually want to fork out hundreds of thousands of dollars for earthquake repairs or hundreds of thousands of dollars because the unit leaks like a sieve.”

Some large village operators had made submissions and several of the smaller ones, especially where the retirement commission’s suggestions could impact badly on their balance sheets.

Such suggestions were that village operators had to buyback the units after a certain period when a resident either left or passed away. Those villages would have to hold funds to do that especially if a virus like Covid-19 caused the death of several elderly residents at one time.

The risk to the operator was substantial, Collyns said.

Retirement Commissioner Jane Wrightson has produced a white paper recommending changes to the way the retirement village sector operates its village businesses.

But units were usually sold really quickly. If there was an unreasonable delay like a year or more, then the association would “have a bit to say” to that owner, Collyns said.

It was already talking to its members on best practice for that issue which did not impose unrealistic financial burdens but made sure the residents got their money back within a reasonable time.

The several protections in the Retirement Villages Act were “world-leading and rock-solid”.

He said the commission should not get involved in commercial issues.

The commercial terms were whether the capital gain was shared, deferred management fees, fixed weekly fees, and fees continuing after the resident leaves.

All of those factors enabled residents to have a huge choice of villages, Collyns said.

“And if they (the commission) start trying to restrict the commercial terms it will mean the choice residents have is reduced, and we don’t think that’s in anyone’s best interests,” Collyns said.

The association considered the current law had a good balance between residents’ rights and operators’ responsibilities.

The association had gained an extension for a consultation with its members and would analyse the responses at the end of the week and release its submission next week.

The Retirement Commission's recommendations in its white paper

.Improve the resale and buyback process. Options include introducing a guaranteed time for buy-backs, interest payable during a vacant period, and allocation of any capital gain on sale between the resident (or their estate) and the operator.

.Restrict the charging of weekly fees after a resident vacates a unit. An option would be to reduce weekly fees by 50 per cent after three months and to stop them entirely after six months.

.Review of the complaints function to streamline and formalise a clear and simple process.

.Consider if consumer protections are strong enough.

.Review the disclosure statements to produce simplified and accessible documentation.

.Examine how the presence of care services changes the nature of a retirement village and whether the definition of a retirement village needs to change to include more lifestyle developments.