Retirement Village budgets must comply with a variety of legal requirements in order to avoid penalties under the Retirement Villages Act 1999 (Qld) (Act). Importantly, this includes a requirement that retirement village operators must not increase the amount they charge residents for general services charges (GSC) by more than the consumer price index (CPI)1 percentage increase for that financial year.
What is a general services charge?
GSC are charged to residents of retirement villages and cover a range of operating expenses, such as external lighting, pest control, water, taxes, gardening and other operating costs.
A recent Supreme Court case2 has considered section 106 of the Act which contains the limitations on increasing the GSC payable by residents.3 In this case Australian Retirement Homes Ltd appealed to the Supreme Court of Queensland regarding GSC that were disputed by a former resident for the years of 2007 to 2011.
The central issue of the case involved the definition of “general services charge” in the Act and whether section 106 of the Act capped:
- the estimated amount the operator was (contractually) entitled to charge residents for GSC; or
- the amount which the operator (actually) spent on acquiring the services to be provided to the residents.
The Court held that the CPI cap relates only to the total of the GSC to be levied on existing residents and not to anticipated contributions by the operator. That is, the CPI cap only relates to estimated charges that are contractually payable by residents.
It was also recognised that the cost of the general services are typically funded from a variety of sources, which may include:
- GSC levied on existing residents;4
- GSC levied on former residents;5
- contributions by the operator in respect of unsold or unoccupied units;6 and
- operator subsidies.
How to write GSC into your budget – properly
What can you be doing to ensure you are complying with your operating obligations?
In general, in terms of GSC budget items, retirement village operators should aim to comply with the following principles:7
- revenue received from residents should be recorded / identified separately to any anticipated contributions from the operator;
- budgets that state single-line revenue items without distinguishing between anticipated contributions from residents and the operator would be insufficient to properly inform residents and therefore insufficient to comply with operator obligations; and
- despite operators having an option to charge a single levy on residents for all GSC, the budget must individually and specifically state the dollar amount payable for each general service (the Court suggested that this could be done by having a schedule to the budget).
Retirement Villages that are under development or staged
Another issue that is prudent to keep in mind is the calculation of GSC for retirement villages undergoing development or that are part of a staged development. If a village is undergoing development, the GSC may be higher (to cover those extra costs associated with developing the village) and therefore may require subsidies from the operator to ensure that the GSC charged to residents does not exceed any increase in CPI that year.
The resident in the case mentioned above argued that a substantial deficit could be carried forward once the development had ceased and therefore effectively charge residents more than the increase in CPI. The Court, although finding in favour of the retirement village and dismissing the resident’s argument, called for the GSC concern regarding developing village deficits to be addressed legislatively.