Residents proposing capital improvement to communal facilities

Introduction

In this topic, procedures, other than those specified by the Retirement Villages Act 1999 (the Act), are provided as suggestions only.

Part 5 division 3 (ss 90 to 90E) of the Act prescribes certain obligations, and some limited direction for procedures, where residents are proposing capital improvement to a retirement village’s communal facilities.  These provisions should be read in conjunction with this article.

Section 90 of the Act places, on the scheme operator, sole responsibility to pay for the costs of the retirement village’s capital improvement, including the capital improvement of communal facilities owned by the scheme operator, except for circumstances where residents propose capital improvement, and (a) residents agree to be jointly responsible for the cost utilising the provisions of s 90B, or (b) are paying with monies from their residents fund.

Definitions

Schedule 1 of the Act provides the following definitions:

capital improvement—

(a) means the first time provision of a capital item; and

(b) to the extent it is not inconsistent with paragraph (a), includes a thing that is a capital improvement under a ruling under the Taxation Administration Act 1953 (Cwlth) dealing with capital improvement.

capital items include the following—

(a) all buildings and structures located in the retirement village and owned by the scheme operator, including the communal facilities, amenities and accommodation units, other than items that, under the residence contract, are to be maintained, repaired and replaced by the resident;

(b) all plant, machinery and equipment used in the operation of the village, other than items that are body corporate property;

Examples for paragraph (b)—

communal hot water and air conditioning services, kitchen and dining room equipment, community facility furnishings, gardening equipment, village bus or transportation services

(c) all village infrastructure owned by the scheme operator.

Examples for paragraph (c)—

roadways, pathways, drainage, sewerage mains, landscaping, electrical distribution systems, water services and connections and distribution systems.

How residents propose capital improvement

What not to do

It is quite common that residents are confused about the mechanism to make a proposal, to the scheme operator, about capital improvement. It is often the case that residents focus on s 90B and incorrectly conclude that a special resolution is required to simply submit a proposal to the scheme operator about capital improvement.  This is not the case.  Before making a proposal by special resolution, residents should understand the purpose and operation of 90B, by taking note of certain words and terms used therein, namely:

‘This section applies if–‘

This means that, the provision operates to the extent set out in subsection 2, only where both circumstances set out in subsection 1, occur.  That is, this provision, places on all residents, joint responsibility for the cost of the capital improvement where (a) residents have passed a special resolution to give the scheme operator a written request to make capital improvement; and (b) the scheme operator makes or agrees to make the work.

‘…by special resolution…vote to give the scheme operator a written request for a capital improvement to the retirement village’

The written request for a capital improvement, mentioned in this provision, is not a proposal to the scheme operator to get quotes and to consider agreeing to the capital improvement, but rather, it is a formal request made only after residents:

• have been given quotes; and
• have discussed all relevant matters; and
• are wanting the scheme operator to proceed with the capital improvement; and
• a special resolution has been passed to give the request to the scheme operator.

Under this provision, if the scheme operator makes or agrees to make the capital improvement, all residents are jointly responsible for the cost.

On considering the above, the Act does not require that residents must put forward a motion and pass a special resolution, contemplated by s 90B, before residents put forward a proposal, are given quotes, conduct discussions with the scheme operator, and in principle, finalise all matters relevant to the proposed capital improvement.  This is because, at this early stage, residents have no idea about (a) how much the capital improvement is going to cost (b) whether the scheme operator might agree to the capital improvement and pay for such improvement, and (c) how residents might pay if the operator does not agree to pay.

What does the Act prescribe?

The Act, other than prescribing that residents committees may give the scheme operator a written request to get quotes for capital improvement (s 90D(2)), has no further description of the mechanism for residents proposing capital improvement.  As such, there is no prohibition on any resident or group of residents proposing that the scheme operator consider making certain capital improvement to communal facilities.  Residents may make this proposal either through their residents committee or directly to the scheme operator.  There is no requirement to do so, but residents may conduct a majority vote deciding to put a proposal to the scheme operator to consider capital improvement.  A vote at this early stage may provide an indication of the general support for the proposal.

In summary, s 90D(2) relates to residents proposing certain capital improvement through their residents committee, while s 90B operates only to make residents responsible for the cost, if residents pass a special resolution requesting the operator to make a capital improvement, and the operator makes or agrees to the capital improvement.

Suggested procedures for making a proposal

The Act is silent as to how a proposal is first instigated.  However, it is not uncommon for it to be raised at a residents meeting or a letter might be sent to the residents committee. 

A resident or a group of residents, in some manner, propose that the scheme operator consider certain capital improvement – for example, by written request:

1. through the residents committee who, under s 90D(2), request the scheme operator get quotes for the capital improvement ; or
2. directly to the scheme operator.

In some cases residents may pass a simple majority resolution at a residents meeting before the proposal is made, but there is no requirement to do so.

A proposal for capital improvement should clearly and fully describe the nature and timing of the capital improvement.  In addition, it would be prudent that the proposal requests, under s 90, that the scheme operator be responsible for the costs.

In summary, a proposal is a request to the scheme operator to get quotes for and consider capital improvement and to open discussions related to the proposal.

What happens after a proposal

Proposal by residents committee

Where the request was made in writing by the residents committee, the scheme operator must get 2 quotes from qualified tradespersons appropriate for the capital improvement (s90D(3)).  This requirement does not apply where, for exceptional reasons, it is not practicable to get more than 1 quote.  The quote/s must be given to the residents committee. 

Proposal directly by residents

The Act is silent as to a scheme operator’s obligations where a proposal is made directly by residents to a scheme operator.  However, it is suggested that it would be prudent for the scheme operator to get quotes, as if the request was made by a residents committee.  The quotes should be given to residents for discussion at a meeting of residents.

The Act is silent as to what happens after the scheme operator gives the quotes to a residents committee, or to residents, but it is suggested that 1 of 3 circumstances (A to C) mentioned below, will arise.

A – Scheme operator rejects the proposal

Regardless of any grand proposal, including that residents offer to pay the cost, it is the scheme operator’s prerogative to decide, without explanation, whether to agree to make or allow capital improvement to their village.

B – Scheme operator agrees to the proposal for capital improvement and agrees to pay the cost

In this case, the scheme operator may also decide the exact nature and timing of the capital improvement.  There is nothing preventing residents from discussing these matters and making recommendations to the scheme operator.  However, the scheme operator is not obliged by the Act to follow recommendations of residents.

C – Scheme operator agrees to the proposal for capital improvement but does not agree to pay the cost

In this case, the scheme operator, in principle or formally, agrees to make the capital improvement, only if the residents agree to be responsible for the cost.

Once the scheme operator agrees to the capital improvement, and dependant on the nature of the capital improvement, residents at a residents meeting should conduct discussions, and confirm with the scheme operator, all relevant matters about the proposed capital improvement, including at least the following:

• the full cost
• the nature and timing of the capital improvement
• the way payment will be paid (how, under s 90, residents will pay or using monies from the resident fund)
• other possible implications– for example, ongoing costs to residents, and will the scheme operator accept certain purchased items as capital items if not purchased utilising s 90B of the Act – for example, purchased using monies from the resident fund.

Using monies from the residents fund

At this stage residents may, by a simple majority resolution, decide to pay the cost of the capital improvement with monies from the residents fund.  It is suggested that s 90B(2) does not contemplate payment for capital improvement with monies from the residents fund (or whatever it might be called in your village), if that is what residents decide, and as such, there is no necessity for a special resolution at all.  This is because s 90B prescribes that all residents when the vote was taken are jointly responsible for the cost…. It is therefore suggested that this provision is only relevant and operates where residents, as natural persons, intend to contribute to the cost from their own pockets, not from another source – for example, monies from the residents fund.

Residents using their own money

Where residents intend, in principle, to pay using their own money, and residents are interested in moving forward, the following procedures apply:

• residents craft, move and second a single motion for a special resolution to (a) request the operator to make the capital improvement, and (b) state how resident will pay under s 90B of the Act – for example, by X number of special levy payments
• all residents are given 21 days written notice of the motion of special resolution
• residents vote on the special resolution.

Will each resident be responsible for the cost of the capital improvement?

The Act is silent on this issue, other than prescribing in s 90B(2) – All the residents of the retirement village when the vote was taken are jointly responsible…..

However, in the context of this provision it is suggested that the following applies:

• It was intentional to provide minimal direction about payments as it gives the residents flexibility with options, however, an option must first be agreeable to the scheme operator.
• Subsection 2 means that residents of the village at the time the vote was taken must pay the total* cost of the capital improvement regardless of:
  • • residents voting entitlements
    • who voted in favour of the resolution
    • where one of two residents dies or otherwise leaves the village
    • *residents having left the village (they remain responsible until they cease to be liable under s 104(3)(b) to pay a proportion of the general services charge upon which time the scheme operator becomes liable for the former residents share of the cost of capital improvement) (s 90C).

As with all retirement villages costs and fees, any cost under s 90B would also be based on the accommodation unit and not the number of residents residing in the unit.  Residents should ensure this matter is taken care of by discussions with the scheme operator BEFORE any motion for special resolution is crafted and passed.  A common example of payment is by way of a special levy for each unit over a number of payments. 

As stated above, the matter of paying for the capital improvement should be decided by voting residents and having this included in the motion of special resolution under s 90B, if this is the path residents are taking, and the scheme operator has agreed to such payment proposal.

Money received for capital improvement

The scheme operator may require the residents to pay the costs of capital improvement before it is made, as a condition of agreeing to make a capital improvement (s 90E(1)).

The scheme operator is obliged to:

• keep the money for the costs of capital improvement on trust for the benefit of residents
• not use the monies for another purpose
• must refund to residents any amount which exceed the cost of capital improvement.

Penalties may apply where a scheme operator does not comply with their obligations.

Do all capital improvements become capital items?

Any new item or improvement to an existing capital item provided under:

• s 90 (cost paid by the scheme operator), or
• s 90B (paid by all residents jointly)

would automatically be a capital item and be treated as such by the scheme operator.

However, where an item is purchased utilising monies from the residents fund; that is, by not utilising ss 90 or 90B, the scheme operator may or may not agree to accept the item as a capital item resulting in the ownership and all associated obligations remaining with residents.