1. The discussion of this topic has been based on a false premise. The issue is not a question of what is Capital
and what is Maintenance (of capital items). The issue is over what is repair of a capital item (chargeable to residents contributed funds) and what is replacement of a capital item (chargeable to the scheme operator).
Maintenance does not pose a problem, it is chargeable to either General Services Fund or Maintenance Reserve Fund; in either case, given the present Act, indirectly to the residents. The Retirement Villages Act directs that such
matters are to be determined by reference to Tax Rulings. The pertinent rulings are in TR 97/23, which distinguishes between repair and replacement on the one hand and maintenance on the other; they are not deductible under the
same Sections of the Income Tax Acts. But those rulings are for the purposes of establishing under which Section of the Income Tax Acts (if under any) expenditure may be claimed as a deduction. That is pertinent to the scheme
operator’s tax liability but our concern is with who pays for what.
2. The problem arising from the Tax Rulings is that replacement of capital items can, in some circumstances, be classified as repair. Scheme operators
are not slow to claim repair, meaning that residents’ funds will be charged. ("Because an item is replaced does not take it out of being a repair" - McCullough Robertson (lawyers) to Cleveland Manor Village Management). If tax
rulings are to be the basis of what is to be charged to which fund, and we do not object to that, then the thrust of those rulings should be used to provide prescription in either the Act or Regulations. It must not be left to
legal argument in individual cases.
3. Aged Care Queensland’s present Maintenance Reserve Fund/Capital Replacement Fund guidelines are hardly distinguishable from those they produced in May
of last year. This Association does not accept Aged Care Queensland as the arbiter on these matters. Their guidelines are palpably cast to indemnify owners against almost all responsibility. Scheme operators will not in any
case bind themselves to them and recourse to the Disputes Tribunal will be of little avail, guidelines are not law. The Act, or Regulations must legislate on these matters.
4. Aged Care Queensland asserted that the involvement of a quantity surveyor in setting the Maintenance Reserve Fund budget was an adequate safeguard
against the scheme operator arbitrarily increasing residents’ contributions. This assertion is completely wrong. Arbitrary increases are being made and we can produce evidence of increases of as much as sixty percent.
5. There are no differences between villages that militate against the universality of rules. To allow election by operators and residents (which in
practice means operators) on whether or not to adopt guidelines would be disastrously ineffective.
There would be no consistency from village to village and the whole thing would fall into complete disuse. There would be no change from the status quo
and Scheme operators would simply ignore guidelines. It would be impossible for the Disputes Tribunal to develop any industry wide rulings within the parameters of the Act. There need to be enforceable distinctions, set out
clearly in the Act or in Regulations.
6. We agree that there should be further meetings to determine who should pay for what because so far nothing of any consequence seems to have been
determined. However, as an example this Association’s attitude, we are of the view that any structural repairs, remedial work, termite inspection and prevention are likely to be a result of poor building practices and should
therefore be the owner‘s responsibility.
7. I draw attention to our comments on "Capital Items" under
DICTIONARY in our submission of May 2001. As we then warned, because of the failure of the 1999 Act to define and
prescribe (and proscribe!), Scheme Operators have been trying to put responsibility for repair and replacement of fixtures and fittings in accommodation units upon residents personally. They have sometimes been doing so despite
and in defiance of residents’ Public Information Documents, leaving residents to challenge, if they have a mind to do so, through the Disputes Tribunal. More recently, new contracts have actually specified that residents are
wholly responsible for fixtures and fittings. It is not fortuitous, or an oversight, that Aged Care Queensland’s guidelines make no reference to the maintenance, repair and replacement of fixtures and fittings in the
accommodation Units.
8. This trend towards making residents responsible for everything must be halted and reversed. Anything which is in a Unit when leased to a Resident
belongs to the Scheme Operator, anything which Residents cannot take with them when they depart belongs to the Scheme Operator, anything which the Act obliges Scheme Operators to insure (which includes Accommodation Units and
necessarily fixtures and fittings therein), (Retirement Villages Act S.109), belongs to the Scheme Operator. Any thing on which the scheme operator is able to claim depreciation or deductions under the Income Tax Acts belongs to
the scheme operator. Anything owned by the scheme operator is his responsibility to maintain, repair and replace. The Act must make it clear that maintenance, repair and replacement may in no circumstances be charged to lessees
or licensees individually. We believe that the provisions of Section 105(1)(b) of the Property Law Act, 1974, should apply to Retirement Village leases and licences but that those leases and licences not be allowed to contain
contrary agreements. The lessee’s responsibility should be confined to "looking after" the lessor’s property.
9. The question arises that since residents, through their funds contributions, pay for everything anyway, why try to make them pay for maintenance,
repairs and replacement personally? The answer is that it reduces the scheme operator’s liability for capital replacement and in respect of repair and maintenance and other expenses it allows the Maintenance Reserve Fund and
General Services Fund to be held as low as possible for the purpose of attracting new residents, who will be unaware of the hidden repair and replacement costs.
10. Summary of ARQRV position
(i). The Act must make it clear that anything in or on an accommodation unit when leased or licensed to a lessee or licensee is an item of capital,
the property of the scheme operator and that replacement, at any time, is capital replacement.
(ii). The Act should also provide that except where damage or wear is deliberately or negligently caused by a resident, maintenance, repair and
replacement costs are to be charged to either General Services Fund, Maintenance Reserve Fund or Capital Replacement Fund and in no circumstances, including under reinstatement costs, to be charged to or recovered from residents
personally.
(iii) That the Maintenance Reserve Fund not be a part of the General Services Charges and be removed from inclusion under S. 107 of the Act.
Budget Setting
1. Residents should have some input into how their money is to be spent; it is not acceptable simply to be told, as is at present generally the case.
As any Public Servant can testify, forward estimates must be submitted long before the current year’s entire expenditure is known! We see no good reason why the Queensland Act should not contain directions comparable to Part 7,
Division 5 of the NSW Act.
2. It would be an advantage for residents if reports on the General Services Fund were available quarterly, on request, as are reports on the Maintenance
Reserve Fund & Capital Replacement Fund. However, simply to state what has been spent is insufficient. We need prior budgetary agreement on all three, in sufficiently detailed format, and then quarterly reports in the same
format so that expenditure may be compared with budget. This also requires that the budgetary format includes notes indicating the periodic, significant payments e.g. rates and insurance premiums.
3. This is not unduly onerous and would probably result in fewer questions. The more informative the accounts, the greater their transparency, the
greater the trust of management by residents. To the lack of which trust and its reasons the Disputes Tribunal has frequently drawn attention. Early comprehensive involvement in and agreement on the budget and detailed quarterly
reports, and a signed declaration of accuracy by the scheme operator, including end of year final accounts, should make it unnecessary to furnish residents with audited accounts, which audits are generally a special purposes
report, full of reservations and disclaimers and of no real value. An expense which residents would be saved. The 1988 Act provided that residents could decide to dispense with audits; the 1999 Act does not do so but should
allow that.
4. If at any point during a financial year expenditure on the General Services Fund has exceeded what residents have contributed up to that point, it is
not uncommon for the scheme operator to make "a loan", at interest, to the residents’ funds to cover the deficit. Such provision is often in the residence contract. Residents should not be expected to pay in that way for what
can be simply bad management. Accurate annual estimates and cash flow are the business of the scheme operator in running his income producing enterprise; they are not the responsibility of residents They cannot be described as a
service provided to residents and residents should therefore not be expected to pay for them.
5. It is fairly common for scheme operators to budget for a surplus and to accumulate a surplus over a period of years. This can be used to absorb
increases in costs in excess of the CPI without having to refer to residents. Surpluses should not be accumulated in that way.
Summary of ARQRV Position
(i). Act to provide that Residents have the right to be involved in setting the following year’s budget.
(ii). Act to provide for quarterly reports on all three Funds.
(iii) Act to provide that residents are not to be charged interest on loans made to their General Services Fund. (The Act does not allow it for
the Maintenance Reserve Fund)
(iv) A surplus in any year is to be carried forward as residents’ contributions in the following year.
Payment of General Services Charge After Unit vacation
1. The ARQRV’s position is that the period over which ex-residents should be required to continue payment of recurrent charges should be capped at
six months. We regard the 90 day provision as not nearly enough and deplore its confinement to post 1 July 2000 contracts. But it is also the ARQRV’s position that the non payment of Exit Entitlement should also be capped at six
months. Aged Care Queensland regard such capping as penalising scheme operators. Not to cap penalises departing residents. So we should examine those relative penalties and conclude who is best able to absorb them.
2. The Act requires that the departing resident vacate the Unit before there can be any requirement to pay the exit entitlement. After vacation, the Act,
Part 3 Division 5, prescribes a host of matters which are going to delay payment of the Exit Entitlement.
If the ex-resident moves out to live somewhere else, how does he or she or they pay for their next accommodation? It is unlikely that some elderly
resident will be able to get or afford an indefinite bridging loan. What if the ex-resident needs to go into an aged care establishment? How will they pay the up-front fee if there is one? Or pay it off in instalments ? How will
they be able to pay for their keep at the establishment and continue to pay the ongoing fees at their erstwhile village residence? And their exit entitlement still unpaid! Who is best able to cope with the costs of that
situation?
3. If there were a cap on the ex-resident’s liability to continue payments, and on the delay in paying Exit Entitlements, the scheme operator would have
an inducement to attend to everything expeditiously; that urgency is certainly not apparent at present. The scheme operator would start proceedings as soon as he knew the resident was about to leave. He would seek the necessary
agreements quickly and get the work done quickly. He would not delay matters until he had induced the resident to agree to some reconstruction costs. All would get done in time to have it ready for occupation well within the six
month cap. Contrary to what Aged Care Queensland have observed, there would be nothing illusory about the benefit for residents wishing, or having, to leave the village.
4. The sale of a "right to reside" is entirely within the scheme operators gift. The resident is entirely dependent on him. References to tightening up,
stricter obligations on both sides, and fast tracking applications to the Tribunal are simply red herrings. We are wasting time.
Summary of ARQRV Position
(i) Continuing payment of both General Services Fund and Maintenance Reserve Fund to be capped at six months following vacation of Unit.
(ii) Repayment of ingoing contribution to be made not later than six months after vacation of the Unit. We accept delay of payment of capital gain until
Unit is re-leased or re-licensed.
(iii) Exit fee, for all residents, not to accumulate beyond date of vacation of Unit.
Access to Disputes Tribunal
There was a remark at the 21st May 2002 meeting that "….residents who become a party to a representative action should undertake to be bound by the
eventual out-come." This presumably means by Orders by the Tribunal. Such orders are binding on all and cannot be appealed except on a point of law. Such appeal has been launched by one scheme operator in the Supreme Court. That
right of appeal cannot be denied to residents.
We do not believe that Section 173 should be removed. It cannot be taken for granted that another resident or residents will take a matter up on behalf
of a complainant, which may involve substantial legal costs. S.173 contemplates the physical, mental or financial state of the resident and also applies to an ex-resident. S.173 should stay.
Lawyers for scheme operators frequently try to prevent the hearing of an application to the Tribunal on technical grounds. It is difficult for the
Tribunal to resist some of the objections because of the wording of the Act. The need to try to settle a disagreement at the village is not unreasonable but there is always such attempt by the resident(s) and those attempts are
often ignored by scheme operators. It is often their failure to respond which gives rise to the dispute.
An application by a resident alleging breach of the Act is not a question for mediation. Either the Act has been breached or it has not. In our view, the
initial step should be an application to the Tribunal for a hearing and it should be up to the Tribunal Chairman to decide, perhaps at a directions hearing, whether or not there is a possibility of successful mediation. If
mediation fails then the matter is heard by the full Tribunal.
We believe that there should be one fee for an application, not one for mediation and then, if that fails, another for a Tribunal hearing.
We are also of the view that the Tribunal should be less formal, particularly in relation to rules of evidence. Residents should not be discouraged from
presenting their own cases or disadvantaged because of their failure technically to properly present it. The Act already provides for a degree of discretion by the Tribunal Chairman, which has been used, but perhaps that
discretion could be extended. Lawyers should not use rules of evidence or any procedural rules to counter or prejudice a resident’s case.
Freehold Villages
To include freehold villages along with other tenures in the same Act of Parliament is virtually impossible without taking them completely from under
the Body Corporate & Community Management Act and removing them from all vestiges of strata title. That seems to be literally impossible. That part of the freehold scene which is the residents’ relationship with the owners of
the lots on which the common facilities are to be found can be dealt with and has been dealt with by the Disputes Tribunal under the Retirement Villages Act. There needs perhaps to be a particular reference in Sections of the
Retirement Villages Act to freehold schemes wherever there is description of or allusion to General Services Fund, Maintenance Reserve Fund or Capital Replacement Fund and perhaps to other Retirement Village aspects.
But by far the greater number of problems, unaffected by the Retirement Villages Act, have always been and still are in connection with body corporate
matters. In particular, the relationship between bodies corporate and body corporate managers. The problems in the past have stemmed largely from, as in other types of village tenure, ignorance by residents of the legislation
and non-compliance with it by body corporate managers, service contractors and letting agents, mostly the same entities, the original owners.
Of particular significance has been the non observance, indeed the disdain, by managers etc. of Section 92(3) and Section 106 of the Body Corporate &
Community Management Act. and similar provisions in the different modules. This was made quite apparent in the Residents v Parkhaven dispute which came before the Disputes Tribunal. Our view has been that those Sections, and
Section 107 should be written in full in any contract between a body corporate and contractor.
Another problem is the multiplicity of bodies corporate in some villages. Amalgamation of those bodies is highly desirable but cannot be compelled. A
retirement village module for retirement villages is not going to solve many problems. One cannot do much about the voting patterns, ownership and voting by corporate owners, or about the entitlements and schedules under Part 6
of the Body Corporate & Community Management Act. They cannot just be abolished.
ARQRV Position
(i) No legislative change of substance be attempted.
(ii) Expanded clarification in Retirement Village Act of application of Sections to freehold villages
(iii) Recital of Sections 92 and 106 be made a part of any contract between Body Corporate and Body Corporate Managers or Service Providers or letting agents.
(iv) Those Sections of the Act to be permanently posted on village notice boards.
