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Focus: Retirement Villages & Aged Care

20 April 2009

In brief: In our February Focus, we outlined recent key amendments to the Aged Care Act 1997 (Cth) and related legislation. Partner Tony Davies (view CV) and Senior Associate Rebecca Barr present a case study on the legal implications of the amendments to link approved provider status to places, or 'bed licences', held.

How does it affect you?

  • One of the key changes to the Aged Care Act 1997 (Cth) (the Act) links approved provider status to places (commonly called 'bed licences'). This has caused apprehension among some approved provider companies that have licensed all of their places to other approved provider entities within their company group. An approved provider that does not hold places (eg because it has licensed them to another approved provider) will lose approved provider status.
  • Approved provider entities that 'own' places, but do not hold the allocation of the places under the Act, may still retain ownership of the places if approved provider status is lost.  
  • An approved provider that has, or intends to, retain ownership but deal with the places through a licence arrangement or other structure, should:
    • seek legal advice to confirm that ownership of the places will be retained after the arrangement is entered into, especially if transferring the places will result in the entity losing approved provider status;
    • formulate a clear exit strategy before entering into the arrangement, building in various safeguards, such as nomination rights, to deal with the places at the end of the arrangement; and
    • keep in mind that the Act will not recognise the underlying interest in the places, potentially making the ownership right more complex to enforce.

Approved provider status linked to places

The Aged Care Amendment (2008 Measures No. 2) Act 2008 (Cth) (the amending Act) became law on 1 January 2009 (the commencement date).

Previously, a person could have approved provider status without holding an allocation of places. The amending Act has altered this by linking approved provider status to each aged care service for which an approved provider holds allocated places or provisionally allocated places.

The relevant changes are as follows:

  • A person who is an approved provider on the commencement date and who does not have an allocation of places, or a provisional allocation of places, will have a six-month period from the commencement date (the transition period) to obtain such places. Otherwise, the person's approved provider status will lapse immediately after the transition period. 
  • If an approved provider ceases to hold an allocation of places or a provisional allocation of places for an aged care service, the person's approval as a provider of aged care for that service will lapse. If this occurs during the transition period, the approval will lapse on 1 July 2009.

Before the amendments, approved provider status still lapsed in certain circumstances. The former section 10-2(1) of the Act provided that a person's approved provider status would lapse if the approved provider did not provide aged care during a continuous period of six months. This was replaced on the commencement date with the provisions linking approved provider status to places. 

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A case study

The linking of approved provider status to places has been a cause of concern to some approved providers that own places but are not recognised as the owner for the purposes of the Act.

For example, assume that Company A owns places for the purposes of the Act, and grants a licence of the places to Company B. Under the terms of the licence, Company B must transfer the places back to Company A at the end of the licence. To facilitate the licence arrangement, Company A transfers the places to Company B for the purposes of the Act. The transfer is approved by the Department of Health and Ageing (the Department). In those circumstances, Company B would hold the places, with Company A retaining ownership of them.

Under the licence arrangement, Company A purports to retain ownership of the places. However, Company A is no longer recognised as the owner of the places for the purposes of the Act, as Company A does not hold the allocation of the places.

If Company A does not hold any other places under the Act, or gain an allocation of places during the transition period, Company A will lose its approved provider status on 1 July 2009. 

Although the transfer of the places from Company B back to Company A at the end of the licence would always be subject to the Department's approval, Company A's loss of approved provider status is an additional hurdle to gaining the places back at the end of the licence.

 

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Issues

Some of the legal issues that Company A may wish to consider are:

  • whether, as a preliminary issue, approved provider status has already been lost (under the former s10-2(1) of the Act), if the transfer of places occurred before the commencement date and, before that date, Company A has not provided residential care for a continuous period of six months;
  • the legal ownership of the places if approved provider status is lost; and
  • how the licence arrangement will be determined if, for example, the Department does not (a) grant Company A approved provider status and (b) approve the transfer of the places back to Company A.

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Ownership of places

Can Company A still own the places if it loses approved provider status?

The Act does not recognise underlying interests in places, such as licence arrangements, trust arrangements, security over places and the like. However, the Act provides that a person may not hold an allocation of places under the Act unless the person is an approved provider.

A number of court decisions support the proposition that a person (such as Company A, being a licensor of places but not the holder of the allocation under the Act) may own places without being an approved provider, and without holding the allocation of places for the purposes of the Act.1

Those decisions may also support the right of a beneficiary of a trust arrangement to ownership of places held by an approved provider holding places on trust, even if the beneficiary is not an approved provider.

Based on that case law, we think the better view is that Company A is able to retain ownership of the places, despite losing approved provider status.

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Company A's exit strategy

Assuming Company A retains ownership of the places despite losing approved provider status after the transition period, the question remains as to how Company A may enforce its ownership rights if the Department does not:

  • approve an application by Company A for approved provider status; and
  • grant a transfer of the places back to Company A.

Further, what happens if Company B attempts to transfer the places to someone else against Company A's interests?

The requirement to obtain the Department's approval of an outright transfer of places from one approved provider to another cannot be sidestepped – it is a requirement of the Act and will commonly be a risk associated with transactions that deal with the underlying ownership of a place. 

Accordingly, the licence documentation should be drafted to give Company A a right to nominate another approved provider to take the places in case a transfer back to Company A cannot be achieved (or is not desired).2

If Company B endeavours to transfer the places contrary to Company A's interests, the Department may not recognise Company A's claim in the transfer application process.3   Company A may be left with the prospect of taking action in the courts to enforce its ownership of the places.4  This may not be a significant risk if Company A and Company B are related parties. 

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Conclusion

An entity may be able to own places, even if the entity is not an approved provider and does not hold the places for the purposes of the Act. 

An approved provider who wishes to deal with places should obtain legal advice regarding the impact of the proposed transaction on the entity's approved provider status and interest in the places concerned.

 
Footnotes
  1. See North Adelaide Nursing Home Pty Ltd v Seely [2000] SASC 455; Harrington and Other v Harrington Services Pty Ltd (in Liq) and Others [2002] NSWSC 859 Equity Division; Harrington v Harrington Services Pty Ltd (in Liq) [2003] NSWSC 29.
  2. In Harrington v Harrington Services Pty Ltd (in Liq) [2003] NSWSC 29, the court implied a term in the relevant lease agreement that permitted the owner of the places to direct that the places be transferred to someone else at the owner's direction. 
  3. See Corio Bay and District Private Hospital NH Proprietary Limited v Minister for Family Services and Others (1998) 157 ALR 181.
  4. Refer to footnote 1. See also Lopez Nominees Proprietary Limited v Holding Nominees Proprietary Limited [1999] VSC 43.

Published 20 April 2009

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