1 October 2018

Transparency reduces future complaints: part 1

In this issue, we look at how you can improve disclosure of information to prospective residents via a pre-contract disclosure statement to minimise disputes down the track. In the next issue we’ll continue on this topic, providing further details and tips.

At Consumer Protection, we receive enquiries that indicate that people have difficulties understanding retirement village contracts. Ensuring residents understand their contractual obligations prior to signing will help save you time and money later, as well as the disruption that will naturally flow if you have unhappy residents.

To assist prospective residents in the decision to enter a village, you must give them certain information at least 10 working days before they sign any residence contract. This bulletin discusses one of those documents, the prescribed pre-contract disclosure statement. Read the full list of the documents that you must give prospective residents on the Consumer Protection website. You cannot charge a fee for providing the disclosure documents and the 10 working days is a minimum. You should provide the documents as early as possible.

Residents who have been given the opportunity to properly consider the information and obtain advice are less likely to misunderstand their contracts or later consider that they have been caught out.

How does this benefit you?

The pre-contract disclosure stage is an opportunity for you to find out whether a prospective resident is suitable for your village, as well as them having an opportunity to make an informed decision about whether your village and its lifestyle benefits and impacts, is for them.

Provision of early, unambiguous pre-contract information reduces misunderstandings both at the pre-contract stage and down the track. Consumer Protection commonly receives enquiries from retirement village residents who are confused or surprised about what they are paying for with individual fees and the contractual obligations they have agreed to. We also receive enquiries from potential residents having difficulty comparing options in different villages.

Pre-contract disclosure is your opportunity to clearly explain to potential residents the full range of benefits, services and amenities they will receive in return for the various fees they will pay. It benefits both you and the residents if there is transparency around fees and contractual obligations. Take the chance to highlight why your village should be their first choice.

Pre-contract disclosure statements

There are two prescribed pre-contract disclosure statements:

• form 1A - to be used for short term residence contracts (these are contracts that are for less than 12 months and where there is no premium or it is less than $1,500); and
• form 1 - to be used for all other residence contracts.

These forms set out what you must disclose. But they do not limit what you can or should disclose, from a good village management perspective.

The details you provide in the form 1 or 1A must be accurate and not leave anything out. All residence contracts include a warranty that the information given in the form 1 or 1A is correct and this prevails over the residence contract terms.

The best way to do it

Provide the pre-contract disclosure statement as soon as possible, so that you have the best chance of reaching prospective residents before they have formed impressions and made assumptions.   

The form 1 or 1A cannot always be provided at an early stage. They are specific to a particular unit and you may want to provide information prior to consumers identifying a unit. For this, you could develop your own generic first level disclosure document for handing out before a consumer indicates an interest in a particular unit.  Just be aware that you will still need to provide a specific form 1 (or 1A) when a unit is identified.

When providing pre-contract disclosure statements, there are risks in relying on consumers picking up what may seem obvious to you. Pro-actively check what prospective residents believe will occur – for example, whether they think they are purchasing the unit or that they will get back more money than they pay upfront - and take the opportunity to correct any misunderstandings.

Aged care: a common misunderstanding

Prospective residents commonly assume that entry into a retirement village includes automatic entry to any aged care facility associated with that village.  The form 1 contains a notice that there is no guarantee as to a place in a residential aged care facility. Draw this notice to the attention of any prospective residents and make sure you advise them of any additional payments they would need to make if they are admitted to an aged care facility linked to your village. Make sure a prospective resident understands that if they enter an aged care facility, they effectively exit the retirement village and may be liable for recurrent costs for capped periods and any exit fees as specified in their contract.

From a resident's perspective

Current residents can be confused about their contractual obligations around fees and charges, including what increases to charges their contracts allow and also their influence on decisions around those costs. Many of the complaints we receive relate to contracts entered into prior to the introduction of the new, clearer disclosure requirements.

The form 1 or 1A pre-contract disclosure helps minimise similar issues arising in the future and builds prospective residents’ confidence that they can understand the obligations that they are agreeing to upon village entry. Make sure a prospective resident understands that if they enter an aged care facility, they effectively exit the retirement village and may be liable for recurrent costs for capped periods and any exit fees as specified in their contract.

Stay tuned:

In part 2 of this bulletin, we will look at how you can improve fee transparency, describe your village and reduce issues at exit and relating to refunds.