This article originally appeared in LawNews (ADLS) and is here with permission.
In her first big move since taking up the role of Retirement Commissioner in February last year, Jane Wrightson has taken aim at New Zealand’s $17 billion retirement villages industry – and found it wanting.
She is recommending major reforms to the industry’s legislative framework in a 40-page white paper. While she has no power to effect the changes, Wrightson has released the discussion document in her monitoring role to “poke the bear”. Feedback is invited by 26 February.
The “bear” is an industry that makes its money from ageing residents. Its five biggest listed players have a combined market capitalisation of $14 bln. The framework under scrutiny involves the Retirement Villages Act 2003, the industry’s Code of Practice (code), the Code of Residents’ Rights (CoRR) and an occupation rights agreement (ORA).
The Act, regulations and both codes are inter-dependent, which sometimes means residents are not sure of their rights because they don’t understand the relationship between the documents.
Wrightson says her aim is to start a conversation and encourage a framework review by the Ministry for Housing and Urban Development (MHUD).
The retirement village industry is growing fast. At its heart, she says, is a tension between big business on one side and increasingly vulnerable individuals on the other.
Wrightson wants the government to take a good look at the framework but knows it will never be high on the agenda.
The paper recommends a policy review to consider:
- an improved resale and buyback process for units;
- restricting the charging of weekly fees after a resident vacates a unit;
- reviewing the code, including the ORA provisions, with a view to establishing best practice and to better balance operator control and residents’ rights;
- a clearer and simpler complaints process;
- whether changes are required to better support retirement village residents’ welfare;
- if consumer protections are strong enough for future trends and investigate whether different models should be encouraged;
- if disclosure documents should be simpler and more accessible; and
- the extent to which the presence of care changes the nature of a retirement village from housing to health and whether the definition of a retirement village needs modifying to include a wider range of lifestyle developments.
The report has ruffled feathers in the industry but consumer organisations say it is long overdue.
The operators’ industry body, the Retirement Villages Association (RVA), argues that only minor tweaks to the framework are needed. RVA executive director John Collyns declined to be interviewed but emailed a statement saying the review contains inaccuracies and the regulatory framework as it stands is “world leading”.
Collyns says there will always be potential for improvements at the margins and the RVA supports minor amendments to the disputes process and disclosure statement regime.
But its counterpart, the Retirement Villages Residents’ Association of New Zealand (RVRANZ), says the white paper has canvassed the issues fairly and accurately, including the “unfair obligations” on many residents to maintain fixtures, fittings and chattels owned by the operator. The organisation wants immediate relief for residents, with interim changes to the code in relation to buyback accrual of deferred management fees once keys are handed back, interest paid to outgoing residents while the unit is vacant and a shared allocation of any capital gain.
Lawyers interviewed by LawNews questioned whether the report raised policy questions rather than strictly legislative issues, with one suggesting education might be the answer.
The business model
The business model is usually based on the sale of units to residents under an ORA. Residents pay weekly service fees. When they leave, they get back their original purchase price, minus 20% to 30% in deferred management fees (DMF). It is rare for residents to share in any capital gain.
The retirement villages framework developed to put regulation around the existing business models. It’s a system based on disclosure, not prescription, says Peter Orpin, special counsel corporate at Lane Neave. Orpin is not convinced that moves towards more prescription, as suggested in Wrightson’s paper, would work.
“The big benefit of a prescriptive system is that you can go to the legislation for the answer,” he says. “It’s black and white. From a resident’s point of view, it becomes an enormous paper war because instead of getting a document that that [can] be 10 pages, you’re presented with a document that’s 60 pages.
“To me, some of what’s being suggested in this paper is starting to move too far down that line towards prescription rather than disclosure.”
Most retirement village residents are content with their choice of living arrangements and most operators provide good services and care, Wrightson says. Her own father is one of those happy residents.
The paper notes, however, that problem-solving could be improved and the advice given to intending residents can be confusing, with some not understanding the implications of what they’re signing up for. “They sometimes jump off the diving board like they do when they buy houses,” Wrightson says. “Then they realise there’s no water in the pool.”
Some of the more difficult aspects tackled in her report include buyback arrangements when a resident vacates, ongoing payment of weekly fees after the unit is vacated, the complaints system and the inability of the code to be easily varied or reviewed.
Operators and residents (or their estates) may have competing demands when it comes to repayment of capital once a resident leaves. Clause 53 of the code requires operators to buy back a unit upon termination of a resident’s ORA at any time before entering a new ORA with a new resident. Units might be refurbished and sold within months but can remain empty for more than a year, leaving the capital in limbo.
Wrightson says one issue raised by residents is their belief that village operators might prefer to sell new units or that they have no sense of urgency if the resident or estate is required to continue paying weekly fees (though not all villages require ongoing fees).
“Those are really hard questions,” she says. “And it’s time, I think, to have a conversation about them.”
Outlined in the paper are alternative options to the existing model for buyback. They include introducing a guaranteed timeframe, interest payable during the vacant period and allocation of any capital gain on sale between the resident (or his/her estate) and the operator.
The paper notes the possibility of action under the Fair Trading Act 1986 or the Consumer Guarantees Act 1993.
On the issue of sharing capital gain, Anthony Harper partner Jenny Baldwin says in the past some operators offered complex arrangements for sharing capital gains. And departing residents also faced the risk of capital losses. She believes the current system is simpler.
Compulsory repayment before resale could create liquidity issues for operators, especially smaller or not-for-profit organisations.
“That could be detrimental to the interests of all the other residents who are still living there,” Baldwin says. “I have in the past acted in relation to a retirement village that needed to be wound up because it had some provisions in its ORAs which required a compulsory buyback and it couldn’t meet those demands. I just don’t want any retirement village to be in that position.”
When residents leave, some operators continue to charge weekly fees until the unit is refurbished and sold which can be months down the track. Some reduce or halve that amount after a set number of months but there is no time limit on how long this half-charge might go on. Many operators such as Ryman Healthcare have taken it upon themselves to stop weekly fees immediately or after a certain period.
Wrightson’s paper recommends a policy review to consider options to restrict the charging of weekly fees after departure by amending clause 54(2) of the code. Some operators argue the ongoing weekly fee is essential for the cashflow of their business and to sustain services for other village residents.
Moving to care
Transfers from independent retirement village units to serviced care or care facilities can be especially tricky under the current legal framework, says the commissioner.
When residents move into care they are required to end their existing ORA and sign a new one or a variation. Wrightson’s paper notes that clauses 24 and 25 of the code appear to be drafted to cover shorter-term respite care in the village rather than full-time residential care in a care facility.
“Some residents or their families understand the full impacts of some transfer terms only when their individual circumstances change,” she says. By then, they may have insufficient capital to buy a new unit.”
The paper notes there is no standard operator practice for transfers from independent units to care facilities and that ORAs might not be fully compliant with the code. The paper recommend the ORA provisions in respect of transfers to care be reviewed to balance operator control and residents’ rights.
The interface between retirement village living and care is an area where the industry does need to improve, says Orpin, although he believes this can be done through education. He adds: “I think the industry could help itself by certainly being much more open and honest about how far care will extend in a village.
“I’m dealing with it as a live matter at the moment where a resident moved into a village, believing that the level of care was available for increased health needs. When those health needs did increase, [he] was then told by the village, ‘I’m sorry, we don’t deliver that level of care’. They have to move somewhere else. To me, that is evidence of an issue.”
Care units fall within the health system so the Code of Health and Disability Services Consumers’ Rights applies.
Wrightson describes the complaints system as being “all over the shop”.
The RVRANZ says it is onerous, lengthy, stressful and unsuitable for retired people who are seeking a life of peace and harmony, yet [are] keen to have their rights respected. It says many residents are ailing, lack confidence and are keen to please. “They are not fit to engage in a lengthy and unnecessary battle.”
Residents with formal complaints who don’t get satisfaction from their operator can escalate their complaint to the statutory supervisor, mediation or to a disputes panel, where they could face opposing counsel. Wrightson’s paper notes the process can be adversarial and intimidating.
The disputes panel is rarely used. Residents risk having costs awarded against them, although Baldwin says this has happened only once and the sum was relatively small.
Wrightson, who was previously chief executive of the Broadcasting Standards Authority, a complaints body, says a proper complaints system would avoid lawyers. The answer, she says, would be to appoint an independent complaints body similar to the ombudsmen in banking and insurance.
“A decent complaints system works well both ways. It’s a relief valve for residents, and it’s an independent area where operators’ concerns would be listened to.”
Baldwin says the complaints process was updated as recently as 2017. The new procedure included several steps to try to resolve complaints and disputes in a less formal manner.
Michelle Burke, Anthony Harper partner and board member of the RVA, says mediation offered by the supervisors at no cost to the resident is similar to an ombudsman-type service, getting all parties to talk to each other in a forum.
“Does our country really need to get more ombudsmen or commissioners? I don’t know,” she says. “I don’t believe that there are sufficient complaints to justify it.”
Orpin says the answer might be to get statutory supervisors more involved in solving complaints and disputes. If a resident had an issue and the supervisor formed a view that it affected many or all residents, it could help broker a solution. “From my experience, a lot of these issues were helped enormously by simply talking about them.”
Some residents believe statutory supervisors are not independent because they are appointed by the operator. One supervisory company has the lion’s share of the business.
Code of practice
The paper recommends a review of the code itself. Under s 90(4) of the Act, the minister can approve a variation to the code. Two such variations have been made, one in response to the Christchurch earthquakes and the second, in 2017, involved amendments to the complaints process in response to a monitoring report by the Commission for Financial Capability (CFFC).
The white paper also considered structural and drafting anomalies to the legal framework. It notes that the Act, regulations and both codes are inter-dependent. Operators often duplicate the code’s minimum standards and the CoRR’s provisions as terms in ORAs. The effect is that consumers must draw on a range of sources to understand their rights.
The paper goes on to argue that the documents should be reviewed with a view to simplification.
Burke says one area that could benefit from being changed in the Act and regulations is the duplication between the disclosure statement and the ORA, but attempts to work with residents ground to a halt previously. “There was no consensus as to what was important.”
Section 33(2) of the Act presents another anomaly for both consumers and agencies. Residents have a right to refer alleged breaches of the CoRR only to listed agencies. The right excludes referrals of alleged breaches of other key documents.
This article originally appeared in LawNews (ADLS) and is here with permission.