Two decades on: Proposed changes to the Retirement Villages Act 2003

You, or someone you know, may be considering a move into a retirement village. It is a big decision, involving lifestyle choices as well as a significant financial commitment. Understanding the rules that govern retirement villages is crucial – and those rules are set to change.

Why the Act is under review

The Retirement Villages Act 2003 is the cornerstone of retirement village governance. It was designed to provide a clear legal framework for village operators when the industry was new. Two decades have passed, however, and both the sector and our elderly population have grown substantially. The number of villages increased by 24% between 2012 and 2021, and unit numbers surged by 65%. With our ageing population, it is vital to ensure that the legislation is still fit for purpose.

A balanced approach

Te Tūāpapa Kura Kāinga/Ministry of Housing and Urban Development initiated a comprehensive review; submissions on which closed in mid-November. The aim was to strike a balance between safeguarding the interests of residents and encouraging innovation within the sector. A discussion paper was published which you can read here: https://consult.hud.govt.nz and go to ‘review of Retirement Villages Act 2003’.

What happens now?

Although all retirement villages have slightly different arrangements, there are some common features identified in the discussion document.

Before you buy, you are faced with large quantities of paperwork that can be difficult to understand and is sometimes inconsistent; there is little or no room for negotiation
You pay an ‘entry fee’ for the right to live in your unit. This is equivalent to the capital value of the unit. In most cases the retirement village owner benefits from any increase in value
You pay a weekly fee that covers rates, insurance, upkeep of the grounds and buildings, etc. Sometimes this is charged even after you have left the unit
The retirement village operators charge a fixed deduction, often referred to as deferred management fee. This is a percentage of the entry fee, generally between 20–30%, that is deducted when you leave your unit
Many villages charge for the repair of items that come with the unit (such as heat pumps and white goods) and for damage that goes beyond fair wear and tear
The options for moving into care can be confusing and expectations as to availability are not always met, and
Complaints are handled by the operators themselves; there is no independent body for dealing with disputes.

What changes are being considered?

Transparency before moving in

The review recommends re-writing the documents you are given before moving into a village, particularly the occupation right agreement (ORA) and the disclosure statement to make them easier to understand.

Feedback was sought on making it easier to complain about misleading statements made during the sale process and giving you the benefit of the doubt where there are inconsistencies between the ORA and the disclosure statement.

Day-to-day living

There are proposals to require operators to pay for the repair or replacement of the fixtures that come with the unit.

The paper promotes a new independent complaints and dispute resolution scheme. It considers whether free advocacy support should be made available to make it easier to make a complaint.

Moving into care

While there are no proposals to change the current regime, the review urges operators to give clearer and more comprehensive information on the residential care services they offer and the financial implications including:

Making it clear that being moved into care on the same site is dependent on the availability of a suitable room, and
Detailing the costs, including where the operator charges a second deferred management fee if you move from a unit and buy a care suite.

What happens at the end of the ORA?

The ORA can end in several ways, the most common being the death of the resident.

During the time you have lived in your unit, its market value may have increased. At present, the operator benefits from the capital gain and from the deferred management fee.

The discussion paper put forward several different options:

Requiring the operator to repay the capital within a fixed period, say six or 12 months
Giving the operator the option to share the capital gain with you. If so, then it would be exempt from the requirement to repay the capital within the fixed period, and
Paying interest on the entry fee after the unit has been empty for six months.

In some cases, the operator continues to charge the weekly fee while the unit remains vacant and there is no limit on how long this can last. The paper considers this to be unfair and proposes to amend the legislation so that operators can continue charging for no more than four weeks after the unit has been vacated.

Finally, the discussion paper sought feedback on whether there should be any limits on the size of the deferred management fee.

Honouring Te Tiriti o Waitangi (Treaty of Waitangi)

The paper acknowledged that retirement villages have mostly been home to older Pākehā. While the review accepted that many of the solutions to address Māori housing needs for older people sat outside the scope of the review, it nevertheless sought information on experiences and aspirations of Māori and Pasifika about retirement village living.

Other matters

The paper considered widening the definition of retirement village so that it encompasses a greater range of occupancy arrangements including residential tenancy agreements, right to occupation by way of share ownership or outright purchase of the unit.

It also examined insurance cover for retirement villages. Of particular concern is what happens if an entire village is damaged or destroyed by a fire, flood or earthquake and cannot be rebuilt. Most insurers will pay out the sum insured – which could be less than the operators are required to pay out to the residents. The paper proposed that the operators should maintain insurance policies that are sufficient to pay out all the residents’ capital sums.

Next steps

Once the consultation period is completed, advice will be given to the relevant minister.

It remains to be seen whether this will result in an overhaul of the current legislation. We will keep you up to date with developments.

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