Understanding Exit Entitlements – New Article

Exit Entitlements has recently become the main topic of conversation at the Roundtable discussions between WARVRA, Consumer Protection and the operators.

The key points are:

  • Exit Entitlements have recently become the main topic of conversation at the Roundtable discussions between WARVRA, Consumer Protection and the operators.
  • Exit Entitlements are the final payment made to you or your estate after you have permanently vacated the village.
  • Exit Entitlements are paid showing the deductions made for the Deferred Management Fee (DMF) and any other outstanding funds.
  • Exit Entitlements should be paid as soon as possible after you have permanently vacated your residence in the village.

Full details below…

Ron Chamberlain,
President, WARVRA

WARVRA exit entitlements

A common understanding of what is an “Exit Entitlement” by all parties (CP, Operators and Residents) seems an essential pre-requisite to coming to an acceptable proposal on the repayment of some or all of the “Upfront Payment” to departing retirement village residents or their personal legal representatives.

Various Operators are now developing a range of models for the payment by Residents of a fee for living in the Village. Nevertheless, if any model includes any provision for a repayment or a refund or a “credit” at the time of leaving the Village, then that can be described, at least for the time being until a different and, hopefully, better term is agreed, as an “Exit Entitlement”.

The DMF (Deferred Management/Maintenance/Facilities Fee) concept is confusing, misunderstood and not transparent – its continuing use is detrimental to the broader community understanding and confidence in the sector and the Operators ought to be proactive in supporting any change that leads to any improvement in the sector’s reputation. Clarity and certainty about the Exit Entitlement component of the entrance or Upfront Payment to enter a retirement village will assist in the broader public’s understanding and acceptance of the retirement village product. [Recent data released by villages.com.au indicates the public acceptance of the retirement village product is a decreasing percentage of a growing population and that the perception of villages by non-residents is discouraging.]

There are good arguments to be made for creating some financing structure such as the present Upfront Payment:

The Operator needs to be paid for the built facilities that are provided for the Resident to use. It is not essential that this payment is made at the time of departure from the Village (this seems to be a continuation of a practice that may have been necessary in the past but is probably now detrimental to the Operator receiving the highest possible return on his investment with the average length of residence now exceeding a 10-year term or some other cap on continuing charges, sometimes by many years).

This fee for use is, effectively, rental – a payment for the use of the asset/property of another party which has undertaken the risk and invested the effort to provide the facility and who expects to, and is reasonably entitled to, earn an income from the investment.

This fee for use is, effectively, rental – a payment for the use of the asset/property of another party which has undertaken the risk and invested the effort to provide the facility and who expects to, and is reasonably entitled to, earn an income from the investment.

It has to be stressed and understood that this sum is a “loan”, the Operator does not own these moneys and only has a temporary right to their use. They will always be a “liability” of the Operator and they must be repaid to the person who loaned the moneys (or to their legal personal representative upon the death or any other event that precludes the lender from personally receiving the repayment of the loan).

It follows then, that the business model of the Operators must always and at all times provide for this repayment. Difficulty in making these repayments reflects poorly on the business planning of any Operator. Residents should not be disadvantaged and inconvenienced by long waiting periods just because an Operator does not have their affairs ordered so that timely repayment can be carried out.

The failure of some Operators to make timely repayments, notwithstanding the provisions of existing Residence Contracts for the payment to be delayed until a new Upfront Payment is received, may possibly be unconscionable conduct under the Australian Consumer Law in view of the limited rights of Residents to vary the “general contracts” prepared by Operators. WARVRA would like to see this practice tested in the Courts.

The need for a common understanding about the status of Upfront Payments has arisen in our minds due to the language used and the attitudes expressed by the Operators during the Roundtable Meeting on 23 September 2020. Matters of concern to the Resident participants in that meeting included these propositions:

The Operators will repay the moneys advanced to them when they consider their business circumstances make it appropriate (such as when another Resident makes a loan to them{a new Upfront Payment});

The Operators will determine solely if there are circumstances that would persuade them to make a payment at an earlier time than the receipt of a new Upfront Payment related to the same property;

Such early payment decisions seem designed to cast the Operator in a favourable light (as generous and considerate, helping out whenever possible) and to deflect any criticism of the current system.

The moneys deposited with the Operator as part of the Upfront Payment not required for “rental” are the property of the Resident and the Resident or the Resident’s representative should be entitled to receive these moneys back as a right in a timely way. Waiting for a transfer of the lease or another “sale” event over which the departed resident has no control or being dependent on the Operator feeling some sort of compulsion to act in a benevolent way and make an earlier payment is neither timely nor ethically defendable.

The funds loaned are always the Resident’s property. They must know when they will be returned and they must not be dependent on any other party’s goodwill.

DC 8/1/2021
Approved by the WARVRA Legislation Committee