Commerce Commission investigating retirement villages

Wednesday, 10 May 2023

The Commerce Commission is launching an investigation into potential breaches of the Fair Trading Act by retirement villages.

The probe comes after a series of complaints, including from Consumer NZ and village residents, about what they claim are unfair contract clauses which can leave retirees significantly out of pocket.

A commission spokesperson on Wednesday confirmed it had received complaints relating to the industry and was beginning an investigation into whether there were any potential issues under the act.

“As we are in the process of investigating we are unable to comment further at this stage,” she said.

Consumer NZ chief executive Jon Duffy said the watchdog had lodged a complaint with the commission in 2021, and it was good to see the issue getting traction.

A key issue was potentially misleading advertising, with many retirement villages pitching a continuum of care to potential residents.

“Basically, they’re saying if you move in and get too sick to take care of yourself, you can move into hospital care on site,” Duffy said.

“When you look at the fine print, that’s only the case if a bed is available. If it’s not, you could be kicked out of the facility altogether.”

Consumer NZ also took issue with retirement village occupation rights agreements (ORAs) which “clearly” benefitted village operators, Duffy said.

ORAs are contracts retirees have to agree to in order to be able to live in a retirement village.

Residents pay large capital sums for ORAs – in some cases as much as $1 million – and get their capital back, minus a large “deferred management” fee when they leave. They usually do not get the benefit of any capital gain during the period.

“That money isn’t paid out until the licence is on-sold, which means you can be waiting for months or even years for your money. If you’re still in need of care, that can be very difficult and distressing,” Duffy said.

The Retirement Village Residents Association (RVRA) had also complained to the Commerce Commission, as well as lobbying MPs for a law change.

RVRA president Brian Peat said retirees were “getting a raw deal” through several ORA clauses, including residents being charged for capital losses, despite not being given any share of capital gains on their residence, and being required to keep paying weekly management fees for months after vacating a unit.

“Discussions around unfair clauses in retirement village contracts have been well-traversed. There is no shortage of information on which to act,” Peat said.

John Collyns, executive director of the Retirement Villages Association (RVA), said: “We’re puzzled by the complaints from Consumer New Zealand and the Retirement Villages Residents Association. We have been discussing their concerns with them and taking steps to advise members where any change may be appropriate, so we’re surprised an investigation is warranted.

“Our members are fully committed to meeting the requirements of the Fair Trading Act and we will fully co-operate with the Commerce Commission.”

An RVA survey in 2021 had found that out of over 1000 residents who wanted to move to care at their village, only 13 had to move to another facility due to a lack of vacancies, and only eight had needed to be temporarily relocated until a vacancy occurred, Collyns said.

“No member can ever give a guarantee of a bed, but in practical terms there is very rarely an issue, which is typically addressed promptly.”

He said the association had been encouraging members to amend their agreements to eliminate any “perceived unfair clauses”.

“We also know the average time for pay-back of a capital sum to a resident or their estate is four months, 75% within six months, and 90% within nine months. For anyone who has readied their house for sale, marketed it and reached settlement, we think four months is satisfactory.”