Retirement villages are an interesting concept, it gives you a right to occupy space much like other concepts for different sectors in NZ. It is governed by the Retirement Villages Act 2003. The Retirement Code of Practice 2008(1) dictates the minimum requirements that have to be in place for residents in Retirement villages.
Now, typically, you can’t actually buy your way into a village, the villages offer a right to occupy an apartment/villa which is called a ORA (Occupation Right Agreement). This agreement is almost universal in all the retirement villages in NZ and the difference between the fees of the operators are relatively minimal.
The retirees pay a capital fee to enter into this agreement, it could be in the range of $200,000 to $2M; they then pay a weekly ‘maintenance fee’ and when they exit they are refunded their money less a 30% ‘deferred management fee’.
Prior to 2006 many of the Village owners were charged a 20% deferred management fee but also charged a hefty refurbishment fee plus administration fee of 2%(2). Now in 2023, the majority of the agreements with the residents is just a straight 30% cut on exit and a weekly maintenance fee.
The complaints in 2023 concern the details of the time delay concerning when the retirement village owners need to pay the resident after the exit date. In addition to this how much interest the retirement villages should pay to the resident after a stand down time of 3 to 6 months if the unit has not re-sold. Four months ago (Nov 2022) approx. 100 residents marched onto Parliament steps to demand an overhaul of the Retirement Act 2003, stating that the old Act is outdated and they wanted change.(3)
The main changes they are demanding are:
- They didn’t get any capital gain when their unit was sold (which was odd)
- Deferred management fee is too high
- Weekly payments continue even after the retiree vacated
- The retiree is required to use the Village appointed tradespeople instead of allowing the resident to shop around to get better rates.
The Residents Association have also complained that they get charged a large interest rate (up to 7.5% penalty fee) (4) being late in their weekly payments or for repair of something they broke, however when the Village owes the resident money the penalty interest is miniscule, less than 1% above the Official Cash Rate(4)
Sort of reminds me of the IRD.
Licence to Occupy
In a democratic country such as ours, we see land as a limited resource and it must be cut up, divided into segments and these segments are either allocated to groups or sold to the highest bidder. If you are not in a purchase to own property then you need to pay for the right to occupy it. We see this in rental properties which is governed by the Residential tenancies Act (RTA) and commercial leases governed by the Property Law Act (PLA). It is a right to exist in that space for a pre-determined period of time and the right to have a ceiling on the fee charged for that period of time.
The RTA is heavily weighted towards the tenant (since Labour took office) and the PLA leans more in favour towards the landlord. The law is all about the protection of those that can’t protect themselves and to make sure the have’s do not take advantage of the have-nots. To make sure the rich do not create slaves of the poor and that high ranking individuals do not bully the under privileged.
It is assumed that business people are capable enough to negotiate and enter into commercial leases so let’s leave the PLA alone and focus on the difference between the rights of Tenants and the rights of the Retirees.
The demanded changes to the Retirement Act by some of the Retirement Association members, as already mentioned, were clauses in the contract that the residents agreed to and signed upon entering the village. Were they bullied, taken advantage of or effectively made slaves to the rich in doing so? Let’s analyse this and keeping the Rule of Law in mind when concerning equal law applied to all, we will see if the law to protect Retirees is the same as it is with residential tenants.(5)
- In the RTA, the landlord pays for the maintenance of the stove, oven, dishwasher, air con unit and other landlord assets
1(a) In the Occupation Rights Agreement (ORA), the retiree pays for the maintenance of the stove, oven, dishwasher, air con unit and other landlord assets (much like a tenant does in a commercial lease)
- In the RTA, the landlord cannot charge the tenant a penalty fee if the tenant is late in rent
2(a). In the ORA, the retirees must pay a penalty fee if they are late in their rent (maintenance fee)
- In the RTA, the bond must be returned to the tenants when they exit within two weeks or make a claim on it. If the tenant or landlord does not respond to a refund notification within that time, the landlord or tenant that lodged the refund will receive the amount they have asked for. The bond is held by a third party.
3(a) In the ORA, the time due to pay out is not mandated by law but only governed by the OCR agreement. The Retirees money is held by the retirement Village owners.
- In the RTA, the tenant ceases their payments to the landlord when the tenant vacates the property
4(a) In the ORA, the Retiree continues to pay the weekly payments after they vacate and continue until the Retirement Village is able to sell the Unit (Unless the ORA says otherwise).
I won’t go on, but there are several other differences between the Tenancy Act and the Retirement Act when it comes to protecting the vulnerable, which is what the rule of law is all about. It seems like the Retirement Act is much more akin to the Property Law Act where the focus is on the financial returns of the landlord. The commercial tenant maintains the assets of the landlord and in many cases is expected to pay a substantial capital replacement fee through a bodycorp. This is akin to the deferred managed fee that the Retirees have to pay their landlord to replace the capital costs of their assets.
So, why is it you may ask, is the retiree treated similar to the treatment of a commercial tenant than a residential tenant? Could it be that if the government mandated that the retiree should not have to pay a deferred maintenance fee and not have to pay weekly maintenance fees, shareholders in the development of a retirement village would put their money elsewhere? If there is no money in the deal for the shareholders then they wouldn’t invest in retirement villages in the first place and we would then have an issue. God forbid, the government may have to build all the villages with tax payer money.
If investors were not interested in retirement villages then the government would have to offer incentives for the investors, much like they do with child care centres. In the latter, the government pay child care business’s an amount per child which enable the business to pay a higher rent to make it attractive for developers/shareholders to invest.
The government, therefore, have a choice.
They can change the law to restrict Village operators from charging a high ‘deferred maintenance fee’ on exit and to mandate a lower percentage capital gain (currently the market rate is 30%) to village operators. The after-flow effect of this would be for village operators to charge more on entry to the village, however this is likely to scare people away and instead they will likely purchase a unit in the private market. This will mean low occupancy and village operators will more than likely invest elsewhere and Villages would not be built. A real problem when we have a proportionately high aging population.
In summary, the government loses if it changes the Retirement Act 2003 for the betterment of the retirees. If you take from the ‘haves’ then there will be a flow-on effect, there always is and it always affects the same people the rule of law is put in place to protect.
What it comes down to is that either the retirees pay out or the government do. In this, like so many other instances, the government will find themselves in a conflict of interest situation as they try to pacify the retirees without giving anything away.
Some residents are asking for an overhaul of the Retirement Act 2003 and a review of the Act is being considered in 2023 (6). It will be interesting in an election year to see how the labour government will respond.
If they don’t help the retirees, the retirees will inform the NZ public and votes for the Labour government will be lost. If the Government mandate positively for the Retirees, the budget will not look pretty and votes will be lost.
We are due for a budget announcement in May 2023, we wait with baited breath!