Previously, we explored the different types of retirement village contracts available in the ACT –https://propertyandlegal.com.au/navigating-retirement-village-contracts-in-the-act/. This follow-up article examines the commonly used loan licence agreement and what security exists for residents under this system.
Many ACT Retirement Villages operate under a loan licence system, whereby residents make a significant upfront ingoing contribution or payment of a loan to the provider for the right to occupy a nominated village residence, usually for the term of their lifetime, with provisions for an earlier exit able to be included in the loan licence agreement.
In addition to this initial loan amount, general recurrent or personal service fees are paid to the operator for extra services for the duration of their residency. Then, upon exit, departure fees are generally deducted from the loan and, in some cases, can be substantial. All these fees must be outlined in the contract provisions and disclosure documentation. A loan licence agreement means the resident does not own the premises or have a registered interest in it, and therefore their name will not appear on the registered Crown Lease for the unit.
Without the security of the property being occupied, this raises the question for many potential residents of what protection applies to their loan funds.
The Retirement Villages Act 2012 stipulates that under a loan licence agreement upon commencement of any residential contract a “charge” is created over the land for the amount of the refund due the resident on exit as stated in the village contract, affording statutory protection of the ingoing contribution paid by the resident. A charge acts like a mortgage, however there is no transfer of legal or beneficial ownership or possession, merely an encumbrance on the asset.
So, what happens if an operator goes into receivership or wants to sell the village?
The statutory charge is binding on, and enforceable against, the owner of the land prohibiting disposal of the land, except:
- In accordance with an order under sections 245 and 246 of the Act which sets out the procedure for enforcement of charge; or
- According to section 247, in the disposal of land in a retirement village in the course of the sale of a retirement village as a going concern.
In other words, in the event the operator sells the retirement village, the statutory charge is applied as against the land and of course transfers to any new owner.
In addition, according to section 246, a resident or former occupant may apply to the Supreme Court for an order in relation to land in a retirement village if the operator of the village becomes insolvent, an administrator is appointed in relation to the operator, or a person reasonably believes it is unlikely the operator will be able to refund their ingoing contribution per their residence contract.
The statutory charge described above remains in force until the village contract is ended and all of the operator’s liabilities under the contract have been met.
A resident may also choose to take the further step of registering their statutory charge (at a cost to them) although it is not required by law. A registered statutory charge does however have priority over an unregistered statutory charge.
The formal process for registering and/or removing a registered statutory charge is currently under review by the ACT government.
If you have any questions about the security of your ingoing contribution, contact Property & Legal.