Time for consideration and cooling-off periods

Retirement villages in Victoria are governed by the Retirement Villages Act 1986 (RV Act) and its regulations. The RV Act says operators must give prospective residents a copy of the contract at least 21 days before the resident signs it. This gives them time to assess the contract and consider whether to proceed.

The RV Act gives non-owner residents a cooling-off period of three business days after they sign the contract. During the cooling-off period, they can change their mind and cancel the contract. Their ingoing contribution is refunded, minus the greater of:

  • 100 or
  • 0.2% of the ingoing contribution.

A similar cooling-off period applies to property sales under the Sale of Land Act 1962. This means non-owner residents have the same cooling-off rights as owner-residents. (Owner-residents buy the strata title to their units.)

We would like your views on the current consideration and cooling-off periods under the RV Act.

Questions for consideration

  1. Are the current 21 day ‘consideration’ period and the 3 day ‘cooling-off period’ under the RV Act effective in achieving their aims? If not, what other or additional measures would be effective and fair?

Disclosure obligations

Disclosure when advertising a retirement village unit

Ads for the sale or lease of retirement village units often only advertise the up-front price. They do not mention any extra costs and charges. Prospective residents may believe the advertised price is all they must pay.

Extra costs and charges can include ‘deferred management fees’ (DMF) or other departure fees and charges. These can significantly reduce the amount a resident gets back when they leave and their unit is resold or leased.

We would like your views on whether there should be more transparency in the advertising of retirement village units for sale or lease.

Questions for consideration

  1. When advertising the ‘price’ of a retirement village unit, should there be a requirement to include a reference to any deferred management fees and other departure fees and charges?

Pre-contractual disclosure

The RV Act says operators must give certain information to prospective residents. They must provide it in a clear, easily understood form. This helps prospective residents understand what they are agreeing to. They must receive certain information before they sign a residency and management contract.

Operators provide information in ‘fact sheets’ and ‘disclosure statements’.

Fact sheet

By law, operators must provide a fact sheet to prospective residents on request. The fact sheet should include general information on important matters about the village. It must also contain information about the costs of entering, living in and departing the village. This lets prospective residents ‘shop around’ and compare offers from different retirement villages.

Disclosure statement

At least 21 days before a resident signs a contract, the operator must give them a disclosure statement. It must set out the exact costs relating to their unit. It must also include an estimate of their exit entitlements after one, two, five and 10 years. This gives residents a clear understanding of the costs involved. It ensures they are aware they will receive less than the contract price when they leave the village.

We would like your views on the current pre-contractual disclosure obligations under the RV Act.

Questions for consideration

  1. Has the provision of a Factsheet and Disclosure Statement to prospective residents led to an improved understanding of the financial and contractual arrangements relevant to living in a retirement village enabling prospective residents to make an informed decision?
  2. What, if any, further improvements could be made to improve prospective residents’ understanding of the potential financial and contractual arrangements relevant to living in a retirement village?
  3. Are the current timeframes for provision of a Factsheet and Disclosure Statement to prospective residents appropriate?

Contracts – form and complexity

Retirement village contracts can be complex and difficult for residents to understand.

To address this, since 2014 the RV Act and regulations say that all contracts must:

  • be in writing and in a standard format
  • cover all relevant matters
  • exclude common unfair terms, and
  • include commonly accepted rights and obligations for owners, managers and residents.

We would like your views on the form and content requirements for contracts under the RV Act.

Questions for consideration

  1. Have the form and content requirements for retirement village contracts introduced in 2014 improved residents’ understanding of the contractual arrangements they have entered into?
  2. To what extent do retirement village contracts remain unnecessarily complex?
  3. What further improvements could be made to contractual requirements under the RV Act?

Financial models and the deferred management fee

Retirement villages can offer different sorts of financial arrangements, or models. The most common models are:

  • loan-lease or loan-licence, also known as the DMF model, and
  • strata-title (freehold title) model.

Loan-lease/licence model

This model features:

  • a large up-front payment or ‘ingoing contribution’ from the resident. This operates as an interest-free loan to the retirement village operator
  • deferred management fees on leaving, and
  • refund of the up-front payment to the resident when they leave (after fees have been deducted).

Deferred management fee

The DMF is an annual fee the resident pays for each year they live in the village. It is usually capped at a set number of years. It can be calculated as a percentage of the purchase price paid by either the:

  • leaving resident, or
  • future resident.

The DMF model aims to let retirees buy a unit for less than the market value of a similar unit in the same area. They may also avoid paying stamp duty. The village owner recoups the discount on the market value of the unit through the:

  • interest free loan (the ingoing contribution), and
  • DMF.

We would like your views on the following suggestions. They aim to improve the understanding, transparency and operation of the DMF model.

Questions for consideration

  1. Should retirement village operators be required to disclose ingoing prices for entering a retirement village both with and without deferred management fees? If so, what form should this take? If not, why not?
  2. Should deferred management fees be calculated on a pro rata basis? If so, why? If not, why not?
  3. When should retirement village operators be required to provide a resident with an estimate of their departure fees and what are your reasons?