Retirement villages come under scrutiny
This growing sector has attracted its share of complaints. NSA says, regulate now before it’s too late.
There are many retirees who vouch for downsizing into a retirement village. “We should have made the move earlier” is a common refrain.
However, National Seniors Australia (NSA) also hears from dissatisfied retirees who say that if they knew as buyers what they know now, they would never have moved into a village in the first place.
NSA has told governments there is a need for urgent reform in laws governing retirement villages to:
Reduce the financial risk
Make village providers more accountable
Introduce standard, clear, and consistent contracts.
Having received such negative feedback from members, we were not surprised by a recent ABC News investigation into the retirement village sector.
The report exposed how hundreds of elderly Australians found themselves trapped in costly and complex contracts, facing exorbitant exit fees, refurbishment costs, and ongoing financial burdens even after leaving their retirement village.
Families spoke out, describing the system as one that unfairly benefits operators, leading to financial ruin for some residents.
The report raised serious questions about the ethics of retirement village operators and highlighted urgent need for reform in the rapidly growing industry.
The industry, the report said, has minimal regulatory oversight, has was described by retired actuary and academic, Tim Kyng, as peddling “cunningly designed rip-offs" and by crossbench federal MP, Rebekha Sharkie, as engaging in a form of “corporatised elder abuse”.
Some of the elderly residents or their families interviewed described them as a financial prison, a disaster, and ethically bankrupt.
NSA urges consumers to be fully informed, and careful, before signing contracts.
Many older people interpret dedicated retirement village legislation as conferring a degree of consumer protection. This can provide a false sense of security about the nature of retirement village contractual and financial arrangements.
It may, in fact, inadvertently, deter purchasers from taking a “buyer beware” approach because they wrongly believe they are automatically protected and may be less likely to either carry out, or finalise, due diligence before signing a contract.
Most complaints were about the fees charged when residents leave, which often include an exit fee and the cost of refurbishing the villa.
Queensland retirement village resident, Joan Green, 89, told the program she saw it as a form of robbery.
After buying in 11 years ago for $384,000, she will walk out with $81,000 after the retirement village operator deducts its various fees.
Ms Green was not alone. Dozens of current and former residents, their children, lawyers, former staff, real estate agents, academics, and an auditor specialising in retirement villages claimed that most residents don’t understand what they are signing and go backwards financially when they leave.
Residents complained especially about what they saw as a lack of transparency in contracts and the hidden costs that only come to light when residents leave or pass away. Exorbitant exit fees and refurbishment costs charged by operators were high on the list.
These fees can be based on a percentage of the unit’s sale price, often escalating with time, and can leave residents with a fraction of their original investment.
Many families have been hit with steep refurbishment costs, which can seem completely disproportionate to the actual state of the property.
Operators can require the resident to pay for simple painting and replacement of carpets, while others require dramatic renovations.
Lynette Anderson’s story offers a cautionary tale about doing research before moving in. She is still smarting over the cost of “reinstating” her mother, Ruth’s, apartment after informing her Queensland retirement village that she had to move into aged care after a series of strokes.
The village company, which is also a licensed builder, determined what needed to be done and quoted a “staggering” $167,000 to do the job.
“The list of modifications spanned three pages, including new plasterwork, new paint, new tiles and carpet, a new air conditioner, electrical, plumbing, doors, new bathroom, and ensuite cupboards and even a new clothesline,” the reporter said.
Contracts are long, detailed, not reader friendly, and contain complex legal text that could require comment by a lawyer and/or a financial adviser.
Too often, potential buyers do not read the fine print or understand the detail and context, including the financial ramifications. Buyers often don’t seek family, financial, or legal advice before signing up to a retirement village.
Consumers, operators, and government can all benefit from nationally consistent retirement village legislation, which will create less confusion and reduce the costs of compliance.
In the absence of nationally consistent legislation, the states and territories should implement these changes to fix the current laws:
Create an independent retirement villages ombudsman to educate consumers, monitor the sector, and handle complaints.
Ensure fees and charges are clearly and consistently outlined in plain English terms in all contracts.
Retirement village providers can charge maintenance and service fees provided these are reasonable and clearly outlined in plain English in the contract, with examples.
Providers should not charge Deferred Management Fees. These should be illegal for any new retirement village contract.
Refurbishment fees should be applied only after a resident has been in a property for more than 10 years – unless they can provide evidence there is a need for refurbishment.
The value of any exit fee should be clearly stated up front in the contract as either a dollar value or as a proportion of the sale value.
Where a resident dies or vacates their premises, the operator must refund an entry fee within six months (as is already the case in Tasmania). If the former resident is accessing residential aged care, then the sale period will be set at three months, in line with the Refundable Accommodation Deposit (RAD) timeline or the operator should be required to meet the Daily Accommodation Payment (DAP) until the property is sold or when the six-month limit is reached (whichever comes first). The DAP cost will be deducted from the exit entitlement, and this provision should be clearly communicated in contracts.
Advertising and accommodation information should be spelled out, in plain English.
It should be made clear if a resident will not be eligible for the Home Equity Access Scheme as a village resident (unless the rules governing this scheme change).
A retirement village should not be on-sold without the village provider giving residents written notice of the intention to sell/transfer ownership.
The ABC Investigations/7.30 story is available here. More information about NSA’s proposed reforms can be found here.
Related reading: ABC, NSA Advocacy, NSA News
