A case this week in New South Wales involving a dispute between the residents of a retirement village and the operator of a retirement village reminded us of some of the issues that can arise when a village goes into liquidation.
The case involved the issue of redeemable preference shares to residents which were caught up in the liquidation process. It was argued that the Corporations Law took precedence over the Retirement Villages Act. The Supreme Court of New South Wales determined that the residence contracts were enforceable against the subsequent operator of the village.
This update looks reminds us of the statutory protections which may be relied upon by residents.
The Queensland Retirement Villages Act provides for a statutory charge to be registered over the land on which a retirement village is situated.
This charge provides security to residents for the right to:
- reside in the resident’s unit;
- use the communal and recreational facilities; and
- be paid the exit entitlement to which the resident is entitled under the residence contract.
The charge can be enforced against the landowner (noting that the landowner is not always the operator of the village) when:
- a court orders a scheme operator to pay an amount to a resident in relation to the rights mentioned above (to reside in the unit, etc); and
- the amount is not paid within 6 months after the amount is due to be paid.
Enforcement of residence contracts
Section 71 of the Retirement Villages Act provides that a resident may enforce a residence contract against:
- any person who is a party to the contract;
- any person who was the scheme operator for the village or the landowner, when the contract was entered into;
- any person who is the scheme operator for the village or the landowner, when the contract is to be enforced.
When selling a village, an operator should consider the indemnities that it requests from the incoming operator including whether an indemnity for costs, expenses and other payments pursuant to section 71 is appropriate.
Commonly, the incoming operator will be liable for the payment of the exit entitlements to the residents that reside in the village. It is important for the former operator that it obtains an indemnity for actions bought against the former operator after the sale of the village.
The indemnity could be broad so as to cover the costs, expenses and payments associated with any enforcement action or could be narrower to only cover costs, expenses and payments where the former operator was not at fault (i.e. the former operator remains liable for matters where it has caused the breach or taken the action which has given rise to the resident being able to enforce the residence contract).
While this is not an exhaustive analysis of all risks for operators and options for residents, it considers the key statutory provisions of which operators and administrators should be aware.
Operators should consider these issues when selling villages so as to ensure they are adequately protected from the risk of enforcement action bought after the completion date.