Reinstatement and renovation work – contract dated from 1 Feb 2019

About this article

The information provided in this article may not apply to your specific circumstances as your residence contract may offer more beneficial conditions than those provided by the Retirement Villages Act.  Refer to the article – The importance of referring to your residence contract.

This article provides information that explains the difference between reinstatement and renovation, when their right to reside is terminated under residence contracts made on or after 1 February 2019. 

This article 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.

Definitions

Resident – includes, in this article and where relevant, a representative of a resident – for example, the executor of the deceased former resident’s estate.

RV Act – the current Retirement Villages Act 1999

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 resident vacates the accommodation unit.

Introduction

The RV Act includes provisions and many residence contracts contain conditions that may 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 law

Sections 56, 58, 59, 59A of the RV Act and Part 3 of the Retirement Villages Regulation 2018 provide requirements for reinstatement work and/or renovation work, of a resident’s unit when their right to reside is terminated.

Reinstatement work

What is reinstatement work?

The RV Act provides reinstatement work as –

Replacements or repairs that are reasonably necessary to reinstate a former resident’s accommodation unit to the condition required as it was in when the former resident started occupation of it, apart from—

(a) fair wear and tear; and

(b) renovations and other changes to the condition of the unit carried out with the agreement of the resident and the scheme operator.

An example of (b) above  – the resident, after agreeement by the scheme operator, arranged and paid for the installation of internal plantation shutters to windows of the unit, during the period of occupancy.

The RV Act also provides fair wear and tear –

Includes a reasonable amount of wear and tear associated with the use of items commonly used in a retirement village.

The RV Act provides that condition reports must be completed by the scheme operator, before and after a resident’s occupancy, and be given to the resident at the time.  The Retirement Villages Regulation 2018 provides detailed requirements for these reports.  This ensures the resident and the scheme operator have an accurate record of the condition of the unit at the relevant times.  Prospective residents should ensure the report is detailed and accurate.  ARQRV recommends residents to keep a copy of the entry condition report, in a safe place.

On ceasing occupation at the end of residency, it appears there is no requirement for the resident to pay for reinstatement work where the unit generally, and other fixtures and fittings, are in a condition which would be reasonable to expect that they would be in after reasonable use over the expiration of time which the resident was using them.  However, where there is accelerated wear and tear, or items are broken or damaged, reinstatement work will be required regardless of the period. In addition, it also appears that, there is no requirement for a resident to pay for reinstatement work on any improvements or changes made to the unit after commencement of occupation where the scheme operator and resident agreed to the work –

Four simple examples are provided below –

  1. A resident lives in a unit for 10 years and there has been 10 years of fair wear and tear, and nothing is broken or damaged and paint and carpet is worn but in a condition that would be appropriate for the period of occupancy – reinstatement work is not required to be paid for by the resident.
  2. A resident lives in a unit but after only 1 year the wear and tear were similar to the wear and tear expected after 10 years – reinstatement work must be paid for by the resident.
  3. A resident lives in a unit for 6 months but the glass in the oven door is broken but in all other aspects the unit is in a condition expected after 6 months occupation – reinstatement work would be conducted at the residents expense, on the oven door.
  4. An internal window shutter installed and paid for by the resident after occupancy commenced and was agreed to by the scheme operator but has been broken during occupancy – reinstatement work on this item is not required to be paid for by the resident.

The resident may decide to, with agreement of the scheme operator, carry out reinstatement work (or renovation work) to increase the selling value and to improve the market opportunities of the unit.

There will be significant ‘discussion’ between the scheme operator and the resident to agree on –

  • What is fair wear and tear; and
  • a value for the work where the item was not in a new condition when the resident commenced occupation, where reinstatement work is proposed.

Where agreement cannot be reached, the scheme operator or the resident may pursue the remedies provided by Part 9 – Dispute resolution of the RV Act.  ARQRV members of may also contact the association for assistance.

ARQRV is unable at this time, to provide further guidance in this fact sheet about the application of the above provisions as they have not yet been applied to any great extent within the industry nor have they been tested by being the subject of a retirement village dispute or an order made by the tribunal.

As you can see condition reports are vitally important, as they are to be relied upon to determine the above matters.

When reinstatement work must be completed

The RV Act provides that the scheme operator must ensure the reinstatement work is completed within the following times –

  • Where the scheme operator and resident agree on the reinstatement work to be carried out –
    • 90 days after the vacation date; or
    • the agreed time.
  • Where the scheme operator proposes to carry out reinstatement work because the resident did not leave the unit in the same condition apart from fair wear and tear, and the scheme operator also proposes to carry out renovation work –
    • 90 days after the vacation date; or
    • the agreed time for the renovation works; or
    • the time fixed by the tribunal in an order about renovation work.
  • Where the tribunal made an order about reinstatement work – the time fixed by the tribunal.

Who pays for reinstatement work?

Where reinstatement work is required and the residence contract does not provide more beneficial conditions, the RV Act provides that the scheme operator may carry out the work and claim the cost from the resident.

It may be to the resident’s advantage to propose and pay for some level of reinstatement work other than that required by the scheme operator as the unit may bring a higher selling price or simply sell quicker than if work had not been undertaken, notwithstanding the resident is not usually required to pay.  However, before deciding on any additional work, careful consideration must be undertaken as to how much may be gain and at what cost.

Renovation work

What is renovation work?

The RV Act provides the definition of renovation work as –

Replacements or repairs other than reinstatement work.

Unless there are more beneficial conditions in a residence contract, it appears that s 59A(1) authorises the scheme operator to propose and carry out renovation work, which is in addition to any reinstatement work, without agreement from the resident.

Who pays for renovation work?

Unless a residence contract provides more beneficial conditions, the RV Act provides that the costs of renovation work must be shared in the same proportion as the capital gains is shared.

Where the capital gain is not shared between the scheme operator and the resident, the cost of renovation must be paid by the scheme operator.

When renovation work to be completed

Before renovation work is started, the scheme operator and the resident must agree on a date for the work to be finished.  The resident or scheme operator may rely on the remedies of Part 9 – Dispute resolution of the RV where there is a dispute about the finishing date.

Where the scheme operator does not complete renovation work by the agreed date, the resident may apply to the tribunal for an order that the scheme operator pay the exit entitlement.