The Victorian State Labor Government began reviewing the Retirement Villages Act in 2017, after some 9 years they failed to fix one of the most serious of problems.
How
the statement by Consumer Affairs Victoria leads to Victorian
retirement village residents being exposed to financial exploitation
by paying a maintenance charge greater than they have a statutory
obligation to pay.
The
statement by Consumer Affairs Victoria is from page 13 of their booklet
A Guide to Living in a Retirement Village. It is contended that the
statement misleads the entire Victorian industry when it comes to the
methodology used to calculate the $ value of the maintenance charge.
Whilst the statement may have been purposely simplistic given the
nature of the publication, it has been adopted and practised by
village operators statewide as law.
The misleading statement -
“The
retirement village can only increase your maintenance charge in line
with the annual Consumer Price Index (CPI) adjustment.
A
bigger increase is only allowed if it is approved by a resolution of
the residents’ committee or
a resolution of a majority of the residents.”
The
statement guarantees the payment of a ‘maintenance charge’ at a $
value greater than village residents have an obligation to pay under
the act. It deprives residents of the statutory protections afforded
them under Sections 38.1, 38AA, 38.2, and 38.4 of the Retirement Villages Act.
The
page 13 CAV statement incorrectly prescribes that the primary
question to be asked in each and every year of village operation is –
is the increase in the maintenance charge to be greater than a cpi
increase. Residents are afforded protection under Section 38.2 which
mandates the primary question each year is - is the $ value of the
proposed maintenance charge to be greater than the Section 38AA cpi
index % increased adjusted maintenance charge.
The
‘adjusted maintenance charge’ is not the previous maintenance
charge adjusted for cpi. The confusingly
named adjusted maintenance charge is a Section 38AA cpi calculated,
standalone, $ value. A value
to which the proposed maintenance charge is compared (benchmarked)
for the purposes of affording
residents protection under Section 38.2 each year.
The
page 13 statement incorrectly prescribes that a Section 38.4 vote of
residents is only required in those
village years where the increase in the maintenance charge is greater
than a cpi increase. Section 38.4
mandates a vote of residents in each and every village year where the
$ value of the maintenance charge
is to be greater than the Section 38AA cpi calculated adjusted
maintenance charge.
Table
A and then Table B below establish that for a village of 90 units,
with a maintenance charge in the first full year of $624.00
per month, residents are misled into paying $357,062.62 more in their
maintenance charge than obligated
to pay under the RV Act. Using the Consumer Affairs methodology in
Table A -
1.
The operator sought and was granted authority by unsuspecting
residents in years 2 and 6 under the invalid CAV
methodology of - the increase in the maintenance charge was greater
than a cpi increase.
2.The
operator contended that resident authority was not required in years
3,4,5, 7 & 8 under the invalid CAV methodology
of – the increase in the maintenance charge was not greater than a
cpi increase.
Table A
Under
the methodology espoused by Consumer Affairs Victoria, the operator
failed to calculate a $ value
for the statutory ‘adjusted maintenance charge’ despite having an
annual obligation to do so under Section
38AA of the RV Act.
Table
B below uses the provisions of Section 38.1, Section 38AA, Section
38.2 and Section 38.4 of the Victorian Retirement
Villages Act to calculate the maintenance charge. The outcome over
years 3.4.5.7.& 8 of village operation
is a payment by residents of $357,062.62 in their maintenance charge
above their statutory obligation
to pay.
Table B
Table
B above calculates the $ value of the maintenance charge using the
statutory provisions of Section 38.1, Section 38AA, Section 38.2 and
Section 38.4
of the Victorian Retirement Villages Act.
The
fee overpayment stems from -
1.
The village operator in calculating the maintenance charge used the
invalid methodology espoused by CAV in
Page 13 of their booklet A Guide to Living in a Retirement Village.
The actions of the village operator breached
the provisions of Section 38.1, Section 38AA, Section 38.2 and
Section 38.4 of the RV Act.
2.
The operator failed to calculate in each and every village year (excl
1st) a $ value for the poorly named, stand
alone, Section 38AA cpi calculated adjusted maintenance charge. (One
is shown in Table B to illustrate the magnitude
of the financial exploitation problem)
38.1
- "adjusted maintenance charge" means the adjusted
maintenance charge determined and indexed in accordance
with section 38AA;
38AA(2)
- For the purposes of subsection (1), the adjusted maintenance charge
must be determined for each
relevant financial year for the retirement village in accordance with
the formula—
3.
The operator failed to compare (benchmark) the value of the proposed
maintenance charge to a $ value for the
Section 38AA cpi calculated adjusted maintenance charge. This action
denied residents the protection afforded
them each year under Section 38.2 of the RV Act.
38(2)
Despite anything to the contrary in a residence contract, a
management contract or the bylaws a
resident is not required to pay a maintenance charge to the extent to
which it is greater than the
adjusted maintenance charge.
4.
The failure of the operator to compare (benchmark) the value of the proposed
maintenance charge to a $ value for the
Section 38AA cpi calculated adjusted maintenance charge also denied residents the protection afforded
them under Section 38.4 of the RV Act. That in each and every year where
the operator proposes a maintenance
charge at a $ value greater than the Section 38AA cpi calculated
adjusted maintenance charge, village
residents are granted the statutory right to choose which of the two
values they will pay.
38(4)
Subsection (2) does not apply if the payment of a maintenance charge
that is greater than the adjusted maintenance
charge has been approved by resolution of a majority of the residents
at a meeting of tthe
residents or is approved by resolution of the residents committee.
Table
B establishes that residents were misled into paying some $357,000
more in their maintenance charge than
they were obligated to pay under the provisions of Section 38.1,
38AA, 38.2 and 38.4 of the Victorian Retirement
Villages Act.
This
example is for an industry average size village of 90 units and paying an industry average size $624 per month toward village operating costs. There are some 450 villages
in Victoria, housing some 36,000 Victorian retirees, operating under the provisions of the Retirement Villages
Act. A frightening $160 million dollars in unauthorised charges over the period.
