Retirement village owners fire back in the battle for ‘fairness’

Saturday, 18 November 2023

Tens of thousands of people choose to live in retirement villages because of the security, ease-of-living, and society they provide, but many residents feel they deserve a fairer deal.

Demands for a “fairer” deal for retirement village residents threaten the integrity of the model, village owners claim as they fire back in an ongoing battle.

On Monday, the Retirement Village Residents Association presented the government with 18 archive boxes of residents’ pleas for changes to the two-decade old laws governing the highly-profitable retirement village sector.

Now, the Retirement Villages Association (RVA) has delivered its riposte opposing the key demands of residents, which it claimed would threaten the financial viability of smaller retirement villages, and slow the development of new villages.

Top of the list of residents’ demands from the Ministry of Housing and Urban Development’s (HUD) review of retirement village law was that village owners be required to repay residents’ money within 28 days of their vacating a retirement unit.

At any time, about 50,000 people live in retirement villages, which offer secure and social lifestyles, having paid for “occupational right agreements” (ORAs) to live in retirement units.

When residents vacate their unit, either by leaving, or dying, they, or their estate, get back only part of their capital, minus a large deferred management fee.

But village operators are allowed to hold onto the money interest-free until they sell a new ORA on the vacated unit.

Graham Wilkinson, President of the Retirement Villages Association RVA, addresses MPs about reforms proposed for the sector. Also in shot is John Collyns, the RVA executive director. First published September 2022.

Residents say that’s unfair, and want capital to be repaid within 28 days, but RVA executive director John Collyns said it was vital the integrity of the retirement villages model in New Zealand was preserved.

“The sector’s funders have told us requiring operators to hold cash or a line of credit to pay residents out within any specific timeframe would reduce consumer choice, increase costs for residents, slow down new village development, and result in insolvency for some smaller operators in regional New Zealand.”

Most capital repayments happened within a year, he said.

“Research shows that around 75% of units are relicensed within six months, and fewer than 10% take more than nine months.”

Instead of a 28-day deadline for repaying ex-residents’ capital, village operators want to be allowed to keep the money interest-free for up to nine months, after which they would have to start paying interest on it.

In a paperwritten to counter an RVA commissioned report, financial commentator Janine Starks said weak balance sheets were not an excuse for refusing fair financial rights.

The RVA report significantly overstated the likely costs, and operators who were unable to offer adequate rights to residents should not be in the industry, she said.

“These businesses will not struggle to put in place short-term bridging loans with banks to fund the gap between sales.

Weak balance sheets are not an excuse for refusing fair financial rights, financial commentator Janine Starks says.

“It is unconscionable that operators make an average of $1 million revenue over the eight-year tenure of a resident living in a village (based on a $600,000 purchase price), but are refusing to support legislation to buy-back the unit in a short, mandated timeframe.”

The revenue included capital gains, deferred management fee, the value of the interest-free loan from the resident buying the ORA, and the development margin on building the unit.

Starks estimated the cost of a 28-day buy-back on a $600,000 unit was about $13,500.

In any case, if the government was concerned, it could put exemptions into the law for small operators, and not-for-profit entities, she said.

The paper, which was peer-reviewed by economist Shamubeel Eaqub, was handed over to HUD as part of the residents’ submission.

Village owners compete to keep their customers happy, Retirement Villages Association president Graham Wilkinson says.

But the RVA wanted the government to leave the market to establish the balance between residents’ and village operators’ rights.

RVA president Graham Wilkinson said all villages knew that without happy residents, there was no business, so they worked extremely hard to meet their residents’ expectations.

While the RVA did support some of the demands of the residents’ association, it opposed others, including changing the law to ban village owners from charging residents to repair and maintain chattels owned by villages, such as water heaters and ovens.

It also opposed the residents’ association's demand that any law changes be applied not only to future ORAs, but also to those already in existence.

TIMELINE TO A REVIEW

2003: Retirement Village Act established.

2006: Disputes scheme set up for residents to complain to.

2008: Retirement Villages Code of Practice created under the act.

2020: Te Ara Ahunga Ora The Retirement Commission called for review of retirement village laws.

2021: Retirement Village Residents Association published its “Framework for Fairness”.

2022: Retirement Villages Association published its “Blueprint” to make voluntary changes. Residents took their plea for a review to Parliament.

2023: In August, the Ministry of Housing and Urban Development invited submissions to its review.