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First mandatory buy-backs for retirement village units commence in May 2019

The deadlines for retirement village operators to complete their first mandatory buy-backs under the Retirement Villages Act 1999 (Qld) (the Act) fall in May 2019. It is therefore timely to revisit these requirements as a reminder to operators of their obligations.

After the Act was amended in November 2017, uncertainty remained as to whether the mandatory buy-back provisions captured freehold retirement village units. The uncertainty stemmed from the fact that the original buy-back provisions in the Act addressed deadlines for an operator to pay an exit entitlement to an outgoing resident, but for freehold units, the outgoing resident instead typically receives a purchase price from the incoming resident (i.e. no exit entitlement is payable by the operator).

To resolve this uncertainty, the Health and Other Legislation Amendment Act 2019 (Qld) has introduced amendments extending the buy-back provisions to freehold units. These amendments commenced on 11 April 2019.

What do operators need to do?

For terminated licence or leasehold residence contracts, section 63 (as amended in November 2017) requires operators to pay a former resident’s exit entitlement no later than 18 months after the termination date. Unless the parties agree on the resale value of the right to reside, the operator must obtain a valuation within 14 days before this deadline.

For terminated freehold residence contracts, new sections 63A to 63I require operators to enter into a contract to purchase the former resident’s freehold property and complete the purchase within 18 months of the termination date, unless the freehold property has sold to another person in that time or the operator has a reasonable excuse.

The Act includes examples of circumstances that may give rise to a reasonable excuse, including where the operator has taken all reasonable steps but is unable to complete the buy-back because of an act or omission of the former resident, such as failing to release a mortgage over the freehold unit.

Significantly, the Act broadly defines freehold property to include scenarios where the resident does not directly hold the interest (e.g. where title is held by a corporation, and the resident holds shares in that corporation).

The maximum penalty for operators who do not complete the mandatory buy-back within the required timeframe is $352,485.00 (540 penalty units).

When are the deadlines?

The original provisions relating to the mandatory 18 month buy-back period commenced operation on 10 November 2017.

In respect of residence contracts granting a licence or leasehold tenure:

  • For residence contracts that were terminated before 10 November 2017, the relevant 18 month period commenced on 10 November 2017 (and therefore expires on 10 May 2019); and
  • For residence contracts that are terminated from 10 November 2017 onwards, the relevant 18 month period commences on the termination date (regardless of whether the residence contract was entered into before, on or after 10 November 2017).

In respect of residence contracts based on freehold tenure (which is broadly defined, as noted above), new section 63B and transitional section 237Q require that:

  • For residence contracts that were terminated before 11 April 2019, the buy-back deadline is the later of 23 May 2019 and 18 months after the termination date;
  • For residence contracts terminated from 11 April 2019 onwards, the buy-back deadline is 18 months after the termination date (regardless of when the residence contract was entered into).

In all cases, the scheme operator is not required to “buy back” a unit until 14 days after the operator is shown probate of the former resident’s will, or letters of administration of their estate, regardless of the deadlines referred to above. In practice, to comply with the statutory timeframes, operators may need to enter a purchase contract for a freehold unit before probate or letters of administration have been provided. Accordingly, operators should ensure that the purchase contract contains appropriate provisions allowing a right of termination or an extension of the settlement date if the relevant evidence is not provided in time.

For leasehold/licence and freehold units, amended section 171A also allows operators to apply to QCAT for an order extending the timeframe for the operator to comply with its obligations where the operator is likely to suffer undue financial hardship.

Special provisions for freehold buy-backs

The following usual requirements in respect of freehold contracts do not apply to mandatory buy-backs:

  • Statutory cooling-off period under the Property Occupations Act 2014 (Qld); and
  • For units in a community titles scheme – disclosure requirements and statutory warranties under the Body Corporate and Community Management Act 1997 (Qld).

Also, transfer duty is not payable on a freehold buy-back contract.

The purchase price under a freehold buy-back contract will be determined with regard to the valuation and resale provisions of the Act (sections 60, 64, 65, 67 and 68 to 70AD). If a valuation for the unit has been obtained within the last 3 months, that valuation will become the purchase price under the contract. If there is no valuation for the unit, or the last valuation for the unit is more than 3 months old, the operator must obtain a valuation of the unit before entering into the buy-back contract. Alternatively, the parties may agree on a different purchase price.

The outgoing resident’s exit fee may be deducted from the amount paid by the operator to the outgoing resident. However, a scheme operator may not require an outgoing resident to pay their exit fee before the buy-back has been completed.

Operators may pass on their reasonable legal expenses relating to the mandatory buy-back to the outgoing resident. However, an operator may not charge a sales commission.

Terms of mandatory buy-back contracts

The Minister for Housing and Public Works has the power to prescribe required and prohibited terms for a buy-back contract by Regulation, or to introduce an approved form of contract.

As of the date of this article, neither of the above has yet occurred.

If you wish to discuss this article or any other retirement village issues in more detail, please contact Stuart Lowe.

Article by Stuart Lowe (Partner) and Tayla Gorman (Solicitor).

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."