Service Fees (or “Maintenance Fees”) and the CPI

Section 38 (2) of the Retirement Villages Act 1986 over-rides any contractual obligation in the management agreement for residents to endure increased fees “greater than the adjusted (CPI ) maintenance charge” UNLESS your Residents Committee (often owner dominated ) has already met and approved the increase by resolution. Otherwise, it must be put to the residents at a meeting who are then in control to vote for it, put it down , or vary it.

CPI Increase for 2014/15

The owner/operator of a retirement village is entitled to increase its maintenance charge by a percentage based on changes in the Consumer Price Index (CPI published by the Australian Bureau of Statistics). The formula used to calculate the percentage increase is specified in the Retirement Villages (Contractual Arrangements) Regulations 2006.

For the 2014/2015 financial year the percentage increase is calculated by dividing the sum of the CPI index numbers for each of the four quarters June 2013 to March 2014 by the sum of CPI numbers for the corresponding quarters in 2012/13. The table shows the relevant figures for calculating the increase for the new financial year (1 July 2014 to 30 June 2015) for Melbourne.

                       Quarter

Melbourne CPI

                    June 2013     102.6
                    September 2013     104.0
                    December 2013     104.8
                    March 2014     105.3
                    Total     416.7
   
                    June 2012     100.4
                    September 2012     101.6
                    December 2012     102.0
                    March 2013     102.4
                    Total     406.4

                Source: Australian Bureau of Statistics 6401 (All Groups)

The total of the first set of four index numbers (416.7) is 2.5% higher than the total of the second set (406.4) and operators of retirement villages in Melbourne are entitled to increase their fees to residents by this percentage. Any increase higher than 2.5% would require residents’ approval, either in the form of a majority vote at a meeting of residents or a resolution of the residents committee.

A retirement village operator is entitled to increase service fees by more than 2.5% without residents’ approval only if their costs have increased as a direct result of changes in items of expenditure which are set by governments, such as award wages, rates, and taxes.

Special Levy

A similar, but significantly different situation applies to another avenue of extra income the owner might pursue , and that is to seek a Special Levy (Section 38 (1)).  (As there is no provision for a ‘levy’ in the Act, it must be taken to be ‘special’). This requires the residents’ authority by Special resolution (i.e. with a 75% majority) passed at a residents meeting under Section 38 (6) (b) (ii). Thus the residents are in sole control, as a Residents Committee is not empowered to impose it, with one exception  i.e. “… if the management contract…..provided that the residents are responsible for the expenditure or the class of expenditure which the special levy is intended to cover”.

However, this exception is probably rare, and in any case  ‘highlights’ an apparent contradictory flaw in the Act, as Section 38 (6) would assume to negate that circumstance as it emphatically states “ Despite anything to the contrary in a …. management contract…. a resident is not required to pay a special levy…”.

Summary

So what is your situation? Is your Residents Committee independent? If so, it, or the individual residents at any meeting , can be ‘ in control’.  However this can only be effective if a village has some responsible and knowledgeable residents, with some financial experience, willing to protect your interests, and even then they cannot do it without your loyal support   Give it wholeheartedly !

Financial statements

It is essential that up-to-date, accurate financial statements are made available to your committee by the owner or manager , at reasonably regular intervals, to monitor the financial position of the village. Otherwise, it needs to be understood that any action to deny an increase or levy (if substantiated) might bring about, or cause deterioration or reduction in the maintenance of the village.

However, owners are obligated to adhere to their covenants under the management agreement regardless, and it can be kept in mind that they reap at least a conservatively estimated $300,000 per annum from a small village to an incalculable sum from the majority of large villages, from the Deferred Management Fees on departure.