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Focus: Retirement Villages & Aged Care

17 February 2009

In this issue: we look at legislative changes in NSW and at a federal level affecting the running of retirement villages and aged care facilities; exit fees under Queensland legislation; and the meaning of 'general services' in the Queensland context.

• Calculation of exit fees
• New federal aged care legislation passed
• Scope of general services in Queensland retirement villages
• Progress on Retirement Villages Act reforms in NSW

Calculation of exit fees

In brief: In our Focus: Retirement Villages & Aged Care – November 2008, we reviewed a decision of the Queensland Commercial and Consumer Tribunal concerning the proper calculation of exit fees under the Retirement Villages Act 1999 (Qld). The Tribunal's decision has been appealed to the District Court. Partner Mark Stubbings and Lawyer Alma Alic report on the outcome of the appeal.

Background

In Saunders v Paragon Property Investments Pty Ltd¹, a former resident claimed to have been overcharged for the exit fee, and certain other costs, when leaving the village.

The former resident's residence contract required her to pay an exit fee of 5 per cent of the sale price of the unit per year or part year of the former resident's occupancy, to a maximum of 30 per cent of that sale price. The former resident obtained a right to reside in the village on 23 October 2003, vacated it on 23 October 2005 and settled the sale of her unit on 1 November 2005.

The scheme operator charged the former resident an exit fee based on three years of occupancy.

The tribunal found in favour of the scheme operator. The claim by the former resident that section 15(2) of the Retirement Villages Act 1999 (Qld) (the Act) was to be read as 'on a daily pro rata basis' was dismissed, the tribunal noting that it was impossible to say with certainty that those words had been omitted by the Parliament. The tribunal found that Parliament had not prescribed a method of calculating exit fees, only a point in time in a particular year at which exit fees were to be calculated.

Appeal

The former resident appealed the tribunal's decision in the District Court.² The former resident argued that:

• Section 15(2) of the Act required 'a calculation on a daily basis for partial years of occupation, rather than a calculation by reference to the year in which the resident ceases to reside'.
• The words in s15(2) specifically required the calculation to be performed by reference to the day rather than the year ; the Parliament therefore imposing a pro rata calculation on a daily basis.
• An exit fee calculation that was not calculated on a 'pro-rata' basis, would permit the operator of the village to charge a double exit fee for the same unit for a period of time.
• The wording of s15(2) had to be read in a manner that 'best achieves' the objectives of the Act, the former resident relying on s14A(1) of the Acts Interpretation Act 1954 (Qld) to support this claim.

The former resident also applied to the court to add a new point of the appeal, namely that the vacation date of 23 October 2005 was within the former resident's second year, rather than the first day of the third year. The former resident's Public Information Document (the PID), provided that the exit fee should be calculated as from the date of commencement of ownership of the unit. Under the Act, the PID prevails over the residence contract where there is a discrepancy between the two. The former resident claimed that the word from, as used in the above context, excluded the date of commencement of the former resident's ownership of the unit. Accordingly, the former resident was within the two year time frame and the exit fee should have been charged accordingly.

Decision

The court found in favour of the former resident and agreed with the former resident's interpretation of s15(2) of the Act.

The court rejected the scheme operator's argument that the words 'as at the day' in s15(2) meant no more than 'a point in time in a particular year and did not mean as at the day in question on a pro-rata basis'. Stating that the tribunal, in making the initial decision, was pursuing a 'false issue in speculating what words, if any, the legislature had omitted from s15(2)', the court stated that the provision had the same meaning as it would have had if the words 'on a pro rata daily basis' were inserted.

Acknowledging that the scheme operator was entitled to make a profit and the viability of its business depended on the ability to make a profit from exit fees, the court nevertheless considered that the viability of the retirement village would not be threatened by calculating the exit fees on a daily pro-rata basis and that residents would not be at an advantage if the exit fee was payable on that basis.

Addressing the former resident's new point of appeal that the vacation date was within the second year of her occupancy, the court noted that the PID took precedence over the residence contract and that it described the exit fee as calculated from the date of commencement of ownership of the unit. The court allowed the application to add the new appeal point and commented that, based on the case law surveyed on the meaning of the word from, the argument must succeed. The court found that the word from, as used in the PID, excluded the date of commencement of the former resident's ownership of the unit. Accordingly, the former resident ceased to reside on the last day of the second year of occupancy, and the exit fee should have been calculated on that basis.

The court ordered that the scheme operator had to refund $9,900 to the former resident, being the amount 'wrongly retained as an exit fee'.

A notice of appeal of the District Court's decision has been lodged in the Supreme Court.

New federal aged care legislation passed

In brief: New federal aged care legislation has amended both the Aged Care Act 1997 (Cth) and the Aged Care (Bond Security) Act 2006 (Cth). Partner Mark Stubbings and Senior Associate Rebecca Barr outline the key amendments.

Approved provider status linked to places

The Aged Care Amendment (2008 Measures No. 2) Act 2008 (Cth) (the Amending Act) commenced on 1 January 2009.

Before the commencement of the Amending Act, a person could hold 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 key changes are as follows:

• If an applicant for approved provider status gains approval as a provider of aged care on or after the commencement date (ie, 1 January 2009), the approval will not take effect until the person gains an allocation of places or a provisional allocation of places (whether by allocation to the person or by transfer from another entity). The applicant will have a two-year period from obtaining approval to obtain an allocation of places or a provisional allocation of places for an aged care service. Otherwise, the approval will not come into force.
• 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.

Interestingly, these changes may affect the application of state-based legislation to the operations of a provider which loses approved provider status because it does not have an allocation of places.³

Approved provider status and management companies

An applicant for approved provider status may rely on a management company to meet the requirements regarding suitability to provide aged care under the Act. The Amending Act provides that if such an application is approved, the Secretary of the Department of Health and Ageing (the Secretary) may, by written notice, specify that the applicant's reliance on the relevant management company materially affects the applicant's suitability to provide care.

The Secretary will outline the steps required to be taken by the applicant to obtain the Secretary's agreement prior to a change to those management arrangements. In that case, the approved provider must do all things reasonably practicable to ensure that there is no change to the management arrangements without complying with those steps.

A person who is granted approved provider status on or after the commencement date in circumstances where a management company has been engaged, may wish to consider whether the conditions of the approval should be addressed in the termination procedures of the relevant management agreement.

These requirements will only affect a person granted approved provider status on or after 1 January 2009.

Range of key personnel

The Explanatory Memorandum to the Amending Act (the EM) states that since the introduction of the Act, business models for the operation of aged care services have changed. For example, an approved provider entity may be controlled by other companies or entities within a corporate group.

The Amending Act introduces amendments aimed at addressing this issue. Under the changes, a person will be one of the key personnel of an entity if the person is, among other things:

• a member of the group of persons who is responsible for the executive decisions of the entity at that time. A person who is responsible for executive decisions of an entity may include a director of a body corporate that is incorporated, or taken to be incorporated, under the Corporations Act 2001 (Cth), and for any other entity, a member of the entity's governing body⁴ ; or
• a person who has authority or responsibility for (or significant influence over) planning, directing or controlling the activities of the entity at that time.

A person with approved provider status immediately before the commencement date will not be required to notify the Secretary until immediately after the transition period of a change to key personnel which is only a change because of the relevant amendments.

Key personnel in common

The EM states that when starting a new aged care service, some aged care groups establish a new approved provider for the service. The EM expresses concern that when assessing an application for approved provider status, the Secretary does not currently have the power to examine the conduct of 'related' approved provider entities that share key personnel with an applicant.

Now when assessing an application for approved provider status,⁵ the Secretary will be required to consider the record of another approved provider or former approved provider in providing aged care services under the Act, if the applicant and the approved provider have relevant key personnel in common.⁶

Transfer of provisionally allocated places

Before the commencement of the Amending Act, the transfer of provisionally allocated places (commonly called approvals in principle) was not permitted. The EM states that a change of ownership of provisionally allocated places may, in some circumstances, result in the places taking effect sooner. Accordingly, the Amending Act has introduced the transfer of provisionally allocated places in limited circumstances.

Like the transfer of operational places, a transfer of a provisionally allocated place must be approved by the Secretary.

The Secretary will not approve such a transfer unless satisfied that:

• because of the needs of the aged care community in the region for which the places were provisionally allocated, there are exceptional circumstances justifying the transfer; and
• having regard to certain matters (such as whether the transferee is likely to be in a position to provide care for the places within a short period of time), the needs of the community in the region for which the places were provisionally allocated are best met by the transfer.

A proposed transfer which would result in a change of location of the provisionally allocated places will not be approved.

Regulation of accommodation bonds

The Amending Act targets a number of deficiencies in the current regulation of accommodation bonds and other lump sum payments paid by residents. The key changes comprise:

• the introduction of new provisions in the Act requiring the repayment of accommodation bond balances and interest due by former approved providers to residents;
• the inclusion of accommodation bond balances (and interest) owed by former approved providers in the operation of the 'Bond Guarantee Scheme' under the Aged Care (Bond Security) Act 2006 (Cth);
• the extension of the 'Bond Guarantee Scheme' under the Aged Care (Bond Security) Act 2006 to other types of lump sums paid by residents; and
• addressing the 'clawback' of bond balances paid to residents which amount to unfair preferences under the Corporations Act 2001 (Cth), by allowing the Secretary to make additional refund declarations in respect of those amounts (therefore including those amounts in the 'Bond Guarantee Scheme').

Next steps

Approved providers should seek legal advice regarding the effect of these amendments (and the other changes introduced by the Amending Act) on their aged care operations.

Scope of general services in Queensland retirement villages

In brief: A recent decision of the Queensland Commercial and Consumer Tribunal considered the scope of general services in Queensland retirement villages. Partner Mark Stubbings, Senior Associate Rebecca Barr and Lawyer Alma Alic report on the decision.

Background

In The Residents of Kawana Island Retirement Village as Listed in Schedule A filed on 10 September 2007 v Kawana Island Retirement Village Pty Ltd,⁸ certain residents of the Kawana Island Retirement Village (the residents) sought orders under the Retirement Village Act 1999 (Qld) (the Act) to exclude the expenses relating to certain types of services from future calculations of the General Services Charge (the GSC). The residents also sought refunds in respect of the amounts already paid for the disputed services from the Kawana Island Retirement Village Pty Ltd (the scheme operator).

The Kawana Island Retirement Village (the village) offers leased independent living units in the form of apartments and villas.

The disputed services related to certain areas of the apartment building that were not part of the leased areas. The tribunal noted that expenses for those services were included in the calculation of the general service charges for all residents of the village. The expenses included electricity for certain services (such as lifts and security lighting), telephone rental (for emergency telephones in two lifts) and the cleaning of premises.

The residents claimed that the disputed services did not satisfy the definition of general services in the Act. That definition provides that general services are services supplied, or made available to, all residents of the retirement village. The residents submitted that a general service is not 'available to a resident' unless that resident is able to derive some benefit or advantage from it.

The scheme operator argued that those services were for the benefit of the entire village and were clearly noted in each residence contract and the public information document. Further, the scheme operator noted that those services were not provided on 'an optional, resident-by-resident basis' and were services which the Act contemplated would form part of the GSC.

Key issues

• Were the disputed services reasonably charged as part of the GSC?
• Does a general service need to be available to all residents?
• Should residents pay for services that they do not directly benefit from?
• Should general services be 'separately and discretely costed'?

Decision

The tribunal found in favour of the scheme operator and dismissed the application. The disputed services were found to be within the meaning of the general services of the Act and the expenses associated with the GSC were correctly incorporated in that charge.

The tribunal noted that the disputed services related to common areas of the apartment buildings. Each of the disputed services fell within the general definition of services, giving rise to the 'operating costs' set out in the leases. Further, the tribunal found that there was nothing in the relevant public information documents which was inconsistent with the leases and the disputed services also fell within the definition of general services in those public information documents.

The tribunal did not accept the residents' submission that a general service is not 'available to a resident' unless that resident is able to derive some benefit or advantage from it.

Further, the residents' claim that general services do not include 'services which can be separately and discretely costed' was also rejected. The tribunal held that there was nothing in the Act to require this and such an interpretation would 'impose an intolerable administrative burden on scheme operators'.

The tribunal found that the residents' view of the definition of general services was narrow in its interpretation and inconsistent with the legislative intention that, subject to residence contracts on foot, residents should fund communal services.

Progress on Retirement Villages Act reforms in NSW

In our Client Update: Retirement Villages – 16 December 2008, we reported on the progress of the Retirement Villages Amendment Bill 2008 into the NSW Parliament and the proposed key amendments to the Retirement Villages Act 1999 (NSW).

The Bill was assented to on 10 December 2008, following a number of amendments made during the Bill's passage through the NSW Parliament. The New South Wales Office of Fair Trading has indicated that the changes are anticipated to come into effect in the middle of 2009.

We will keep you informed of developments.

Footnotes

1. [2008] CCT VH002-06.
2. Saunders v Paragon Property Investments Pty Ltd [2008] QDC 322.
3. Many of the state Retirement Villages Acts exclude aged care facilities from the definition of a retirement village, in circumstances where (among other things) the operator has approved provider status under the Act.
4. Submissions to the enquiry of the Senate Standing Committee on Community Affairs into the Aged Care Amendment (2008 Measures No. 2) Bill 2008 raised concerns about the scope of the application of this requirement to not-for-profit entities with voluntary board members. The Federal Department of Health and Ageing has produced a Guide to Changes to the Regulatory Framework for Aged Care (December 2008) which assists in determining who will be considered key personnel for the purposes of the Act.
5. This requirement will apply to an application for other types of approvals, such as a transfer of places, extra service status and certification.
6. An applicant will have relevant key personnel in common with a person who is, or has been, an approved provider if: (a) at the time the person provided aged care as an approved provider, another person was one of its key personnel; and (b) that other person is one of the key personnel of the applicant: s8-3(6A) of the Act.
7. See Hodges & Ors v Coastal Buildings Pty Ltd (Buderim Garden Village) [2004] QCCTRV 8.
8. [2008] CCT VH005-07.

Published 17 February 2009

For further information, please contact:

• Mark StubbingsPartner, Sydney
  Ph: +61 2 9230 4257
  Mark.Stubbings@aar.com.au
• Tony DaviesPartner, Brisbane
  Ph: +61 7 3334 3250
  Tony.Davies@aar.com.au
• David McLeishPartner, Melbourne
  Ph: +61 3 9613 8954
  David.McLeish@aar.com.au
• Andrew PascoePartner, Perth
  Ph: +61 8 9488 3741
  Andrew.Pascoe@aar.com.au