Reinstatement and renovation work –
contracts made between 15 Mar 2006 & 31 Mar 2019
About this article
This article relates to residence contracts made from 15 March 2006 but before 1 February 2019.
It does not include matters about a resident’s relative who has a right to reside in the accommodation unit where reinstatement or renovation work is proposed.
This article provides information that explains the difference between reinstatement and renovation, and will assist decision making by residents about the viability of renovation of an accommodation unit when their right to reside is terminated.
Important information – your rights and obligations may differ from those explained in this fact sheet owing to your village’s specific operational arrangements (e.g. you live in a freehold village) or the conditions stated in your residence contract (e.g. you may not be responsible for reinstatement costs) (see article – The importance of referring to your residence contract).
Former RV Act – the Retirement Villages Act 1999 in force 10 November 2017.
Resident – includes, in this fact sheet and where relevant, a representative of a resident – for example, the executor of the deceased former resident’s estate.
Termination date – means the date a resident’s right to reside is terminated by death or by voluntary notice given to the scheme operator. There are other times a right to reside is terminated but these are not covered here.
Vacation date – means the date the former resident vacates the accommodation unit.
The former RV Act includes provisions, and many residence contracts contain, conditions that require a resident to pay some or all costs of reinstatement and/or renovation of their accommodation unit when their right to reside is terminated.
The number of alternatives created by differing residence contracts and changing law makes a ‘one size fits all’ statement impossible to write when the objective is to optimise the outgoing resident’s financial recovery. Therefore, the following is rather a route map by which this may be achieved where some level of reinstatement and or renovation is required.
Sections 58, 59, 61 and 62 of the former RV Act provide requirements for reinstatement work of former residents’ units where rights to reside are terminated under contracts signed before 1 February 2019.
What is reinstatement work?
The dictionary of the former RV Act provides reinstatement work as –
The replacements or repairs that are reasonably necessary to be done to reinstate the accommodation unit to a marketable condition having regard to—
(a) the condition of the accommodation unit at the start of the former resident’s occupation; and
(b) the general condition of other accommodation units in the retirement village that are comparable with the accommodation unit.
In layman’s terms this means that, if the residence contract does not provide more beneficial conditions, the accommodation unit must be returned to its former condition but does not involve any manner of improvement above the unit’s former condition at the time the resident’s occupancy commenced.
Reinstatement may include but is not limited to, and taking into account where it is relevant, returning the following to its former condition, by –
- replacing fixed appliances including oven, stove top and dishwasher
- repairing and repainting of all interior walls and ceilings
- replacing worn carpet, broken or chipped floor tiles, other worn floor coverings, and damaged basins or toilets
- replacing worn or damaged fixtures or fittings – for example, taps, light switches or light fittings
- replacing damaged or worn window latches, screens and window covering or furnishings.
The former RV Act is silent on the matter whether reinstatement work relates to both the interior and exterior of the unit. However, it is usually accepted that reinstatement, relates to only the interior, unless there is accelerated wear and tear, or damage to the exterior of the unit, by the resident – for example, the garage door.
How is necessary reinstatement work decided?
Unless a residence contract provides more beneficial conditions relating to reinstatement work, the former RV Act provides the following –
- the former resident and scheme operator must within 30 days after the termination date, negotiate in good faith and, if possible; agree in writing on any reinstatement work.
- where agreement is not reached within the 30 days:
- the scheme operator must give the former resident an itemised quote* for doing that the scheme operator considers to be reinstatement work; and
- the former resident must give an itemised quote* for doing what work the former resident considers to be necessary
- where agreement is still not reached after the exchange of quotes, the former resident or scheme operator may make an application to the tribunal for an order about reinstatement work to be done.
*Quotes must be from an appropriately qualified tradesperson and must be given within 44 days after the termination date.
When reinstatement work to be completed
Where a residence contract requires the resident to pay the costs of reinstatement work, and the scheme operator and the resident agree on the reinstatement work, the former RV Act provides the work must be completed within –
(a) 90 days after the date the resident vacates the accommodation unit; or
(b) another day agreed to by the scheme operator and the resident.
Where the tribunal has made an order relating to reinstatement work, the work must be completed within the period fixed by the tribunal.
Who pays for reinstatement work?
Unless the residence contract offers more beneficial conditions, the former RV Act provides –
- for leasehold or licence units, the resident must pay:
(a) for the full cost of reinstatement work because of accelerated wear and tear or deliberate damage to the interior, and for other reinstatement work, in the same proportion as the residence contract provides the resident and the scheme operator share the capital gains; or
(b) Nil, where the resident is not entitled to any part of capital gains. In these cases, the scheme operator must pay for other reinstatement work out of the capital replacement fund.
- for freehold units, the resident must pay the full costs of labour and materials for the work.
What is renovation work?
The former RV Act is silent as to what is renovation work, but it is generally understood to be, work done to improve the unit to a condition above its former condition at the time the resident commenced occupancy.
As the former RV Act has no provisions to force the resident to pay for renovation work it is entirely at the discretion of the resident if renovation work is to be carried out.
Reinstatement vs renovation
The resident is responsible for reinstatement only. You must refer to your residence contract to determine what you are obligated to do in relation to reinstatement. You are not obligated to pay for renovation work, but you may choose to do so if you consider it appropriate so as to improve the opportunity for its sale.
If the unit was not new and the reinstatement carried out prior to the outgoing resident having moved in rendered it in ‘acceptable and good habitable condition’ then a case can be made to return the unit to that condition.
If the unit was newly built with all new capital items, and fixtures and fitting fitted, some scheme operators insist that the items must be replaced with the manufacturer’s warranty, interior painted, and carpets and fixtures and fittings replaced at the resident’s expense. While others may accept without the need to replace a used item which is in excellent condition.
It is a contentious matter with reaching agreement between residents and the scheme operator about what is reinstatement or renovation as some scheme operators rip out everything down to the bare shell and fit new everything that do not appear worn or damaged including – for example, light fittings, basins, toilets benchtops and tiles This has led to several disputes between residents and scheme operators.
Resident agreeing to renovation work or not
Residents must carefully weigh up the benefits of agreeing to renovation work proposed by the scheme operator. These benefits may be either a higher selling value, a faster sale or both.
When a unit has been occupied for some years and comes onto the market, it may not, despite obligatory reinstatement having been carried out, be to the standard that would make the unit attractive to current buyers. In this instance the scheme operator may propose renovation works for the unit to bring it up to the expectation of potential residents in the market.
It is at this point that things get messy because of the ‘who pays for what’ and to ‘what standard’ does the unit get improved to and ‘how much will it cost’ and will the resident gain adequate benefit.
As in the case of any home, it is easy to over capitalise by spending more than what additional value is gained for the renovated value of the unit.
Resident not agreeing to renovation work
Where the scheme operator proposes renovation work and the former resident does not agree to it, the suggested way to deal with this, is as follows –
- the former resident and the scheme operator agree to a hypothetical value of the reinstated unit where the former resident pays only the reinstatement work costs, for which there is an obligation under their contract; and
- calculate the exit entitlement on the value of the reinstated unit; and
- the scheme operator takes over with the renovation work as proposed at their cost but retains the added value.
Adopting the above method, there are benefits to both the scheme operator and the former resident, as follows –
- there is no cost, to the former resident, additional to the cost of reinstatement work
- the resident may receive the exit entitlement earlier as the unit may sell in less time
- the scheme operator retains the value added, for the renovation work, to the sale price
Resident agreeing to renovation work
Some scheme operators will try to get the departing resident to finance the renovation work on the promise of enhancing their exit entitlement. A careful cost benefit analysis needs to be conducted and each will be different, as stated above, no ‘one size fits all’ rule applies.
As an example of the above, if the resident agrees to pay $10,000 for renovation work and gets only another $10,000 on the sale value, this would be a poor deal because that $10,000 would be subject to the exit fee (of say 30%) meaning that the resident would be only $7,000 better off. A net loss of $3,000. But if the resident put in the same $10,000 and got an extra $20,000 for the unit, then the $20,000, once subjected to the 30% exit fee, would become $14,000, leaving the resident with an additional $4,000 and, most likely a quicker sale.
A sound understanding of the figures involved with each proposition is needed to make the correct decision possible. To be kept in mind also, is that if the unit sells for less than the figure than the scheme operator forecasts, the resident will be liable for the total of the shortfall (less the exit fee payable on that amount).
What should residents do where they do not agree to proposed reinstatement or renovation works or costs?
Firstly, you are not obliged to pay for renovation work, however you may decide to do so.
You must refer to your residence contract to determine what you are obligated to do in relation to reinstatement work.
You must negotiate in good faith and, if possible, agree in writing about reinstatement works.
Where you still require help and are an ARQRV member, you should contact ARQRV enquires for assistance, as soon as possible.