What is involved in purchasing a unit in a Retirement Village?
An occupation right agreement is any written agreement that gives a person the right to occupy a unit in a retirement village and that sets out the relevant terms and conditions.
The occupation right agreement must be clear and unambiguous. It may consist of more than one document.
The occupation right agreement must comply and be consistent with the provisions of the Retirement Villages Act,(‘the Act’) the regulations and the Code of Practice (although the village may be exempted from any provision of the Code of Practice). The agreement must also provide information on the Code of Residents' Rights and the Code of Practice.
Operators must register their standard form of occupation right agreement with the Registrar of Retirement Villages. The terms of a resident's particular agreement must be either the same as those in the registered form or more favourable they can't be less favourable.
Schedule 3 of the Act and the Retirement Villages (General) Regulations set out what must be covered in the occupation right agreement, and Part 2 of the Act covers the process for entering into an agreement. The Code of Practice (in force on 2 October 2008) specifies minimum requirements for most of these areas, which must be included in occupation agreements if not, they'll apply anyway.
What issues does the agreement have to deal with?
The village and its operations
The occupation right agreement must cover:
• the management of the village
• the village's services and facilities
• the nature of the resident's right to occupy the unit, and the resident's and operator's respective rights to deal with the unit
• the charges relating to the village and to the use of its services and facilities
• the operator's obligation to run the village properly
• the resident's rights to be given key financial documents and other relevant information that they ask for
• staffing
• residents' safety and personal security
• fire protection and emergency management
• the transfer of residents within the village
• meetings of residents with the operator
• accounts
• maintenance and upgrading
• termination of the agreement by a resident or the operator
• communication to those for whom English is a second language or whose ability to communicate is limited
• a complaints facility and a disputes procedure.
Consultation with residents
The agreement must also require the operator to consult with residents:
• before a village is sold or disposed of
• before a new manager is appointed
• about any proposed changes to the services or benefits provided or to charges that could affect residents' ability to pay for them.
Treatment of residents
In addition, the agreement must require the operator and the people who work at the village and provide services to:
• treat the residents with courtesy
• respect their rights, and
• not exploit them.
Where the village or unit hasn't been built
If the village or unit is not yet completed when the agreement is signed, the agreement must state the unit's proposed completion date. The disclosure statement given to the intending resident before they signed the agreement must also give information about the state of the village, including its stage of completion.
Getting independent legal advice before the agreement is signed
Intending residents must get independent legal advice before they sign an occupation right agreement. This means advice from a lawyer who is completely independent of the retirement village operator.
The lawyer must explain to the intending resident the general effect of the agreement and its implications, before the person signs it. This lawyer must do this in a way that's appropriate to the person's age and understanding. The lawyer must then witness the person's signature and certify that they explained these things.
It's not enough that a person such as a staff member from the village explains the agreement to the intending resident it must be an independent lawyer (and not a legal executive).
If in some substantial way any of these requirements is not met, a resident can avoid (cancel) the agreement.
Cancelling an agreement while "cooling off" or for delay
"cooling-off" period after the agreement is signed
After new residents have signed an occupation right agreement, they have 15 working days in which they can change their mind and cancel the agreement. This applies to everyone who signs an occupation right agreement with a retirement village. It’s not necessary for the operator to have done anything wrong.
The cancellation must be notified in writing to the operator or their agent. No particular words need be used, so long as the intention to cancel is clear. No reason has to be given.
Once the agreement is cancelled, the person will get back everything they paid, plus interest, within 10 working days . However, they must pay for any services they used if they lived in the unit during this period, and for any damage they may have caused.
Cancellation for delay
The buyer can cancel the agreement if the unit is not, for practical purposes, completed within six months of the proposed completion date. They can do this any time after the six-month period. They must then be refunded all payments they’ve made.
The buyer must notify the operator or their agent in writing that they are cancelling the agreement. They don’t have to use any particular words so long as their intention to cancel is clear.
Deposits and progress payments to be independently held
Every deposit, progress payment or other payment that a person makes for a right to live in a unit must be held by the village’s statutory supervisor. The supervisor holds the payment until the transaction’s settlement date (or until the agreement is cancelled during the cooling-off period).
If the retirement village is exempt from appointing a statutory supervisor, a lawyer nominated by both the resident and operator must hold the money. The nomination must be in writing, in a separate document from the occupation right agreement.
Avoiding (cancelling) for a breach of the agreement
The Retirement Villages Act gives residents the ability to "avoid" (cancel) their occupation right agreement if it was entered into in breach of important provisions of the Act in a substantial way. This means that the agreement is cancelled and the operator must refund the purchase price and other costs to the resident.
When can a resident avoid an agreement?
This can be done where any of the following things has happened, if the breach was in a "substantial respect":
• the village wasn’t registered when it’s required to be or its registration was suspended when the operator advertised, made an offer of occupation, or entered into the occupation right agreement with the resident.
• something was left out of the information that’s required to be in or to accompany the disclosure statement.
• the occupation right agreement did not include the required information.
• an independent lawyer did not explain the general effect of the agreement and its implications before the resident signed it, and witness and certify that they did this.
When a breach is in a "substantial respect"
An agreement can only be avoided where the breach was in any "substantial respect". This is where the breach:
• involves a "significant detriment" to the resident, or
• is material and not simply technical or minor, or
• involves deliberate misconduct by the operator.
How does a resident avoid an agreement?
The resident must notify both the operator and the village’s statutory supervisor in writing, within the set time limits (see below). This can be done only if the agreement hasn't already been terminated.
The procedures for ending an agreement because of a breach are quite different from where the agreement is ended on other grounds, and it's important that the correct procedures are followed.
What are the time limits?
If the village wasn't registered or if its registration was suspended, the operator and statutory supervisor must be notified:
• within three years after the agreement was entered into, or within six months after the resident knew (or ought to have known) of the breach, whichever period is shorter.
For other breaches, the time limit is:
• within one year after the agreement was entered into, or within six months after the resident knew (or ought to have known) of the breach, whichever period is shorter.
What happens when an agreement is avoided?
The agreement is at an end and the operator must pay the resident:
• a refund of all capital sums paid before or while the resident occupied their unit
• a refund of all other payments made for which services or facilities were not provided
• interest (at the rate set down in regulations)
• actual and reasonable costs associated with ending the agreement (such as legal expenses and removal costs).
What if there's a dispute about this?
If the operator believes there hasn't been a breach, they can take the matter to a disputes panel by giving a "dispute notice". While the dispute is unresolved they must take all reasonable steps to put right any breach. They do not have to pay any refund.
If the operator and resident don't agree when the refund is to be made, either of them can give a dispute notice to resolve this.
Part 4 of the Act has more information about giving a dispute notice in these situations (particularly sections 53 and 54).
This information is provided by Brent Selwyn, Harmans Lawyers, Solicitors. February 2009. http://www.harman.co.nz