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.
