6 November 2018

Transparency reduces future complaints: part 2

Last issue, we looked at how you could minimise disputes through disclosure of information to prospective residents via the pre-contract disclosure statement. Catch up on the last issue if you missed it. In this issue, we'll continue on this topic, providing further details and tips.

Improve fee transparency

Retirement village residents commonly complain to Consumer Protection that they should not have to pay fees they say were ‘hidden’ before they entered a village.  As well as giving rise to future disputes, a court or tribunal may think that a particular fee is difficult to identify amongst all the different fees and charges in your contract.  It is in the interests of both you and residents to have a simple and transparent fee structure.

The Form 1 and Form 1A assist in providing essential fee information to prospective residents in a consistent, easy to read format, detailing items such as:

• Fees and charges upon entry
• Ongoing amounts payable during and after occupation
• Exit fees, including refurbishment costs, reserve fund contributions and any deferred management fees
• Village financials including operating funds, reserve funds and operating budget
• Insurance included and what insurance the prospective resident will need to arrange
• Tables estimating the various fee amounts after one, two, five and ten years of residence.

Operating budget information is vitally important to enable prospective residents to determine whether they can afford the ongoing costs of living in the village. The financial disclosure questions focus on the general operation of the village and related costs. If this information is not accurate and understandable, residents may be unable to pay and you may breach your legal obligations.

Case study example

A retirement village was found by the court to have misled prospective residents as to future recurrent charges. The existing recurrent charges figure they provided was correct and the estimates as to future charges were based on that figure. However, the existing charges were set under a policy of not fully recovering operating costs, despite the residence contract allowing this. The court found that the operator should have told the residents about the policy because the estimates were not based on all the operating costs and the residence contract allowed the operator to recover more if their policy changed.

​Tips

Make your contract as simple as possible. Avoid complex calculations, unusual definitions and fees imposed for similar purposes. If you can't clearly explain the different purposes for fees, think about whether you need to have two fees rather than one.

If you use a calculation method for determining the refund to a resident, consider providing an example that includes realistic figures so that the prospective resident can truly understand how the calculation works.

What happens at exit

A significant number of resident complaints made to Consumer Protection arise from unmet expectations about marketing, re-leasing or selling of vacated premises.

Residents may expect more consultation and control or that the village will do more. You must therefore provide information as to the specific marketing arrangements pertaining to your village to prospective residents, including any fees payable. 

Resident refunds

The most common area of resident complaint to Consumer Protection is probably refunds, due to resident surprise or dissatisfaction at how the contract operates. This can particularly occur where there is a delay before the premises is reoccupied.

Industry research suggests that residents who understand the financial arrangements for their departure from a village generally do not complain.

Take the time to explain any events that must occur before the refund will be provided and any matters that influence how much it will be. Any verbal information you provide must be consistent with your written disclosure.

Information is also required about any precondition for payment and when the resident will receive their refund.

From a resident's perspective

Clear information on all fees payable on entry and exit is essential. The total amount at entry often constitutes a significant proportion of the prospective residents’ assets and savings.

The total amount at exit impacts on whether they can afford to leave the village, including whether they can afford residential aged care.

Describing arrangements in your village

Awareness of the age of a village, the likely need for capital replacement and future development or plans for additional stages are all important considerations for residents in choosing a village.  As an operator, you are required to provide details about when the village was first constructed, dates of subsequent stages of construction, and estimated completion dates of any future construction stages. People looking for ‘quiet enjoyment’ may decide they do not want to live in a village where construction work may create noise and disruption.  Alternatively, some prospective residents may be attracted by the promise of vitality, upgrades or new and better facilities.  Your obligation is to provide sufficient detail to ensure prospective residents are making an informed decision.

The Form 1 requires information about reserve funds because residents are entitled to know how you plan to fund any village redevelopment. This includes how you differentiate between capital works that are your responsibility and those that you will ask them to fund. 

Information about communal amenities is important because residents would not normally be able to afford or maintain such amenities individually. More active retirees can be attracted by retirement villages that offer shared amenities, such as a club house, swimming pool, bowling green and other sporting and leisure facilities. The extent of communal amenities available may be one of the deciding factors in prospective residents choosing one village over another.

Clearly outline any restrictions in the Form 1, to help reduce later disputes. You are likely to have certain restrictions on the use of the residential premises, as well as the use of personal and communal amenities in the village.  Restrictions can cause tensions amongst residents but be difficult to locate in the complex residence contract and village rules.