Top 10 fixes for retirement villages

Ads for retirement villages promote choice and lifestyle options – everyone is smiling.

What they don’t show is people wrangling over contracts, paying to repair appliances they don’t own or continuing to pay weekly fees long after they’ve moved out.

Last August, the Labour-led government announced a review of the Retirement Villages Act. It’s the first time in 20 years the legislation and its related regulations and codes have been up for review.

The review, led by the Ministry for Housing and Urban Development, is to ensure the retirement village sector is working for both consumers and the village operators, given the huge growth in the sector in the past 20 years.

Currently, there are over 450 retirement villages housing 48,000 people in New Zealand, with that number expected to grow to over 81,000 people in the next 10 years.

Consumer NZ made a submission on the review. Here’s our top 10 fixes to ensure retirement village residents have a reason to keep smiling.

Moving in

1. Make it easier to compare retirement villages

It’s not easy to compare retirement villages because operators aren’t required to provide a standard-form document setting out their villages’ key features.

Instead, prospective residents get longwinded disclosure statements that, at best, are full of unnecessary contradictory information and legal jargon. At worst, they can contain misleading statements that lure prospective residents into village life, but never actually eventuate.

We want better protections for residents who are misled. We also want disclosure statements to be replaced with two documents – a detailed information statement and a brief comparison document. Both documents need to be written in plain language and standardised across villages.

2. Provide standardised fair contracts written in plain language

Most villages offer residents a licence to occupy a unit in the village. Before moving in, residents sign a standard-form consumer contract, usually called an occupation right agreement or ORA. ORAs are largely non-negotiable, differ from village-to-village, and tend to be complex and poorly drafted.

We think ORAs need to be standardised, as much as possible, across village operators. This will help ensure they meet minimum contractual standards and comply with regulations. It will also help to weed out unfair terms that are scattered throughout most operators’ ORAs.

Our 2021 review of the contracts offered by six major operators found many terms that we think unfairly favour the operator and risk leaving the resident out of pocket.

We also get regular complaints from residents about unfair terms. In one case, an 80-year-old widow hadn’t received her exit fee almost 1 year after she moved out of her unit. What’s more, she had to keep paying her weekly fees while she waited for the operator to sell the licence to occupy her unit. We think that’s unfair.

The Commerce Commission has also warned six operators about the use of unfair terms.

3. Strengthen rules to stop villages getting away with unfair contract terms

Under current law, individual consumers have no rights to take action against unfair contract terms under the Fair Trading Act. All they can do is complain to the Commerce Commission and hope collective pressure will bring about change.

However, when a dispute arises a village operator can form an independent dispute panel that can amend its ORAs to comply with codes of practice or regulations.

Currently, the dispute panel doesn’t assess unfair contract terms – we think it should. We also want to see a blacklist of unfair terms included in the revised Retirement Villages Act.

Living in

4. Make village operators pay for repairs and maintenance

At most villages, residents fork out a lump sum to live in a unit, but do not own the unit. When they move in, the unit will be equipped with a range of chattels and fixtures, from the carpet and heating system through to an oven or dishwasher.

Problems arise when the operator requires the resident to pay for the maintenance, repair or replacement of those chattels and fixtures, even though they’re owned by the operator.

We think this is unfair. Responsibility for repairing, replacing and maintaining operator-owned fixtures and chattels should rest with the retirement village.

5. Create an independent dispute-resolution scheme and advocacy service

While all village operators must have a dispute-resolution process with set timeframes, the current scheme is confusing, infrequently used and lacks independence.

At present, operators are responsible for receiving, investigating and resolving complaints. They can even appoint dispute panels and a statutory supervisor. However, residents can be put off making a complaint because of the power imbalance, and an unwillingness to make a fuss or risk their relationships with staff.

We think a government-appointed independent commissioner should provide the dispute-resolution service, along with advocacy support for village residents.

The commissioner could enforce the Retirement Villages Act and regulations, as well as monitor and audit the performance of villages. They could also publish information about the disputes, complaints and investigations they are involved in.

6. Stop retirement villages double dipping

Currently, when a resident moves from a unit into aged residential care within their village, they can be charged a second “deferred management fee” (or fixed deduction) on top of the one they’ve already paid.

We haven’t heard any compelling reason for an operator to charge a resident twice to live in the same village. Yet many do. In one case we heard of, a resident was asked to pay an extra $100,000 to move to another unit and offered an interest-free loan of $40,000 by the operator to facilitate this.

We want new rules preventing operators from charging more than one fixed deduction.

7. Bring in minimum building standards

Villages may or may not meet current building and healthy homes standards, depending on when they were built, and whether they have been refurbished.

We think this is unacceptable. All villages should be providing healthy homes for their residents and meeting the current building standards.

Leaving

8. Repay capital sums within 28 days

Currently, a village operator doesn’t have to repay an outgoing resident their capital sum until someone else is living in the unit. Despite the fact the resident has vacated the unit, handed over the keys and no longer has any rights to occupy the property, the operator can continue to hang on to their money.

While the operator is meant to take all reasonable steps to find a new resident in a timely way, we’ve heard lots of cases of outgoing residents left in financial limbo waiting for their capital payment. The outgoing resident has no power to hurry the sales process along, meaning they could be waiting months or even years for their money.

Regardless of whether the operator has found a new resident, we think the capital sum, less fees, should be paid to the outgoing resident within 28 days of leaving. If the unit isn’t re-licensed in that time, the rules could allow the operator to apply for an extension of up the 3 months, on the condition that interest accrues on the outstanding capital sum from the 28th day.

9. Stop unreasonable charges

Operators should stop charging any fees when a resident has left their unit. Yet some continue charging until the unit is reoccupied.

In our opinion, there’s no good reason to keep charging someone for a service they aren’t getting. Nor is there any good reason to allow a fixed deduction, or exit fee, to continue to accrue after the resident has left. In our view, these are both potential Fair Trading Act breaches.

While residents are living in the village, the operator is meant to consult them about any proposed increase to weekly fees. However, we’ve heard that residents have little say when weekly fees go up.

What’s more, weekly fees are based on the cost of the unit, rather than the actual cost of the services provided.

The current rules need to be strengthened so any increases are linked to actual costs and the operator consults with residents in good faith. We also think weekly fees should only be reviewed annually, and a cap imposed. We think exit fees should be capped at 30% of the capital sum.

10. Treat capital gains and losses fairly

Most villages don’t share capital gains. If you paid $700,000 for the right to occupy your unit, but 5 years later it sells for $850,000, the village usually gets to keep the extra $150,000.

To make matters worse, the current rules allow operators to make a resident liable for any capital loss (or reduction in the value of the sale price) when the unit is relicensed, even if they aren’t eligible for any capital gains. We think this is unfair.

We’d like to see new rules introduced to ensure fair treatment of capital gains and losses.

Next steps

Consumer has made a submission to the Ministry of Housing and Urban Development on all these issues, and more. The ministry is currently considering the submissions it’s received, and we hope to hear more about the review by the end of the year.