In any form of real-estate, the public airing of storiess where residents get back just $94,000 from an initial outlay of $250,000 cause a stir.
The case of Tim Allerton, whose story was aired as on Four Corners following a joint ABC/Fairfax investigation in June, is no exception.
According to the program, Allerton’s aunt Joan Buswell purchased a unit in retirement village operator Aveo’s Lindfield Gardens Village in 2008 for $250,000. After his aunt became sick and was forced to move out, Allerton put the unit on the market – appointing Aveco as the real-estate agent. Two and a half years later, it sold at $199,000 (having been listed at $270,000), with Allerton receiving just $94,000 after exit fees, agency fees and other costs. Over that same period, property research outfit CoreLogic reckons the value of similar apartments within Linfield rose by 38 percent. Despite his aunt having passed away, Allerton had to fork out $10k-$13k each year in maintenance fees throughout the sale period.
According to the program, gaps in regulation are leaving retirement village residents vulnerable to exploitation – with alleged problems including fee gouging, churn, excessive and complex contracts and misleading advertising.
Recommendations for reform dating from an inquiry back in 2007 have been ignored whilst consumer bodies were underfunded and there was no responsibility for retirement villages in any federal ministerial portfolio, the program suggested.
Fairfax’s Adele Ferguson labelled villages the ‘get poor quick’ scheme.
In response, some states are acting. Queensland and New South Wales have introduced regulatory changes whilst the Victorian government has supported some of the recommendations into its review announced earlier this year. South Australia introduced changes last year. Western Australia is reviewing its laws. The industry itself announced an eight-point improvement plan in July.
For its part, Aveo disputed several claims made on the program and says it has introduced new and improved contracts.
All this prompts questions about the adequacy or otherwise of current levels of consumer protection and how if at all regulation needs to be changed.
Retirement village lawyer Richard McCullagh says regulation varies across states and territories. Noting that much of the focus of Four Corners revolved around Victoria, McCullagh said regulation is weakest in Victoria and the Northern Territory but more robust in New South Wales, Queensland and the Australian Capital Territory.
Speaking of the latter jurisdictions, he says contracts are tightly regulated and controlled. In New South Wales, for example, all agreements must follow the same mandatory form which specifies not only what topics need to be addressed but what needs to be said about these topics. This, he says, promotes transparency and facilitates comparisons between providers.
This contrasts with Victoria, where McCullagh says legislation requires certain topics to be covered but does not specify what needs to be said in relation to these topics or how information needs to be presented.
As an example, he points to complaints aired on the program about recurrent charges or monthly fees continuing after the resident has moved out. In Queensland/NSW/ACT, he said, this happens in a restricted manner only whilst any excess of payments over and above provider costs is required to be carried over and returned to residents.
As for the complexity of contracts, McCullagh acknowledges that agreements can be lengthy and confusing. Nevertheless, he points out that these are set up to deal with the remainder of the resident’s life and need to provide not only for a stay which will last decades but also one which incorporates a range of services which will be provided over many years.
The complexity, McCullagh adds, is not a problem provided that prospective residents obtain suitable legal advice.
Joseph Rose, lawyer and business consultant at Melbourne based Rose Lawyers and Conveyancers, adopts a dimmer view.
Speaking from his own perspective, Rose said his ‘prejudice’ is to avoid retirement villages unless people wish to be around those of their own age. Financially, Rose says, retirement villages represent a ‘terrible’ investment, involving costs which are ‘exorbitant’ regarding both recurrent fees as well as the amount deducted at the conclusion of the lease period. Any amount which residents do receive, Rose said, is unlikely to fully cover amounts paid out. Even where amounts received do exceed those paid out, Rose says the gain is often so small that it fails to keep pace with inflation.
For many, Rose said, continuing to live in their own home would spare them any costs associated with major refurbishments or other deductions when the house is eventually sold whilst enabling them to benefit from appreciation in the capital value of their property – all with a cost of maintenance which is unlikely to be any higher compared with that incurred in respect of retirement villages.
Whilst he does not believe that sales strategies are deceptive, Rose says contracts and the way they are presented are often difficult to understand – albeit with astute children of potential tenants often being able to work out what is going on in regard to the aforementioned phenomenon of costs exceeding income.
Rose says residents of retirement villages have little protection.
“The potential occupants do not realise that they have virtually no rights whatsoever,” Rose said.
“They are not owners. On many occasions, they are not tenants but rather licensees. The large amount that has been transferred to the management of the home is an unsecured loan. There is no certainty that the property will continue to be looked after. In fact, if there are management deficiencies, there is very little that any individual owner can do.
To protect consumers, Rose would like a number of changes.
First, any money which has been loaned should be maintained in a central government controlled fund under similar arrangements to those which apply to ordinary residential and commercial leases. With second-hand units often taking years to sell, Rose says there needs to be a mechanism to enable residents or their next of kin to cash out quickly after the resident leaves. Unit sales should be taken out of the hands of management and performed by real-estate agents only.
Unsurprisingly, Ben Myers, Executive Director – Retirement Living at the Property Council of Australia, paints a more positive picture.
According to Myers, coverage on Four Corners and other media outlets has created a misconception about the issue of retirement village contracts and complexity.
Complexity with regard to contracts, he said, was not being driven by any desire on the part of the operator to befuddle prospective residents but rather by legislative requirements which are designed to promote transparency and to deliver a high degree of consumer protection.
In addition, the greater complexity associated with retirement village contracts also reflect the differing nature of retirement village arrangements as opposed to more traditional real-estate transactions, he said.
Myers says a common misconception involves ideas about retirement village living being purely a financial investment whilst a common mistake was to compare retirement villages contracts with those relating to real-estate.
Retirement living, he said, is not so much a real-estate decision but a decision about the lifestyle that prospective residents wish to enjoy along with the services they wish to receive. When you buy into a retirement village, you in fact buy into not only a property but also a range of services which you would like to receive. Accordingly, the contract needs to cover not only the property but also how services will be delivered and paid for over time along with what will happen when the resident eventually leaves.
At any rate, Myers says the supposed difference in complexity between a retirement village contract and the property related contract associated with other forms of downsizing options such as units or apartments needed to be put into proper perspective. Whereas retirement village contracts dealt with all accommodation and services within the contract itself, this was often not the case for other downsizing options. With apartment contracts, for example, prospective purchasers needed to look not only at the purchase contract for the individual unit but also other matters such as the rules and financial position of the body corporate or whether there were structural defects within the building which would impact all residents and necessitate special charges on residents.
“Retirement villages, because of the legislation that exists around the country to establish them, ensure that residents entering them are given a high degree of transparency about what they are buying into and what they are getting,” Myers said.
“You can’t necessarily say the same when you are buying into another type of property because you don’t often get that information up front or you might have to go and get that information for yourself. With a retirement village, the legislation means that in the contract, you are being presented with that information.
“Unfortunately, because of Four Corners, the perception that the program has created is that there is not a view (in the public) that this is the case. Four Corners and other programs have tried to create a myth that there are these overly complex contracts which seem to mislead people.
“The contracts are in many respects the outcome of state legislation. The state legislation has been developed in response to providing consumer protection.”
Beyond legal issues, McCullagh advises residents to think carefully about whether or not retirement village living is the best option for them and about which facility best meets their needs.
Once that is decided, he said it is critical to seek independent legal advice.
As for regulatory improvements, McCullagh would like nationally consistent regulation which he says could be based largely around the current regime in New South Wales.
“I say to residents, once you have decided that you do want the retirement village life, go around to a bunch of villages and get the ‘vibe,’” McCullagh said.
“Make sure you like the people there, and how close (or otherwise) it is to transport.”
“Then, get down to the legal detail but don’t proceed without the legal detail and the right advice.”