Clarity on Asset Management Plans and retirement village budgets

Who pays the costs associated with preparing an Asset Management Plan (Plan) for retirement villages in New South Wales has been clarified by two recent decisions in the NSW Civil and Administrative Tribunal.

The Tribunal ruled that the costs of preparing the Plan can be considered an operating cost and funded through the village budget.

Background

In 2017, the NSW Government published the Inquiry into the NSW Retirement Village Sector, referred to as the Greiner Report.  One of the recommendations of the Greiner Report was for operators to prepare and provide residents with an Plan, being a comprehensive analysis of the costs related to repairs, maintenance and replacement of all items of capital in a village.  The question of who bears the cost of preparing such Plans was left open but has been clarified in two recent decisions of the NSW Civil and Administrative Tribunal.

The Retirement Villages Act 1999 (NSW) (Act) was amended in December 2020 to establish the obligation and regime for operators to prepare a Plan.  As a result of COVID, the Plans were delayed to commence from July 2022.  The amendments formed part of Part 7 of the Act which deals with the financial management of a village.  Amendments were also made to the Retirement Villages Regulation 2017 (NSW) to provide support and the Department of Fair Trading issued the Secretary’s Guidelines for retirement village asset management plans (Guidelines) under s189B of the Act in May and revised in August 2021 to provide further information for operators to assist in preparing Plans.

Not surprisingly, questions and disagreements arose between residents and operators as to who should bear the costs of preparing the Plans.  The Guidelines did refer to the ability for operators to pass the costs to residents through the village budget or by special resolution through the village capital works fund whereas residents argued that they are costs of the operator.

Tribunal decisions

Two recent decisions by the NSW Civil and Administrative Tribunal provide clarity as to who bears the costs and lawful ways an operator may distribute the costs.

In Lendlease Retirement Living Holding Pty v Closebourne Village Residents Committee [2022] NSWCATAP 197, the NCAT Appeal Panel confirmed that the costs of preparing an asset management plan may be properly characterised as an operating cost and funded by recurrent charges through inclusion in the village budget provided that the village contract allows statutory compliance expenses to be included in recurrent charges.

The Appeal Panel further found that the absence of legislation mandating the allocation of costs does not mean that the costs are by default borne by the operator.  The Appeal Panel made its decision by overturning the Tribunal’s initial decision that the costs of preparing the asset management plan should be borne by the operator and should be excluded from the village budget.

In Ball v Lendlease Retirement Livings Holding Pty Ltd [2022] NSWCATCD, the Tribunal referred to the Closebourne decision and elaborated that compliance costs refer to all expenses that an entity incurs to adhere to government regulations and quoted the Appeal Panel’s observations that costs could be allocated between the operator and the residents by the contract.

Significantly, the Tribunal in the Ball case also affirmed that ‘capital maintenance’ is defined broadly enough under the Retirement Villages Act that it captures the costs of preparing an asset management plan.

Neither decision made any explicit decision in relation to the impact of the Guidelines.

These two decisions provide much needed guidance to the industry on the operation of asset management plans.

If you would like assistance using and updating the Plan for your village please contact our national Health, Aged Care and Retirement Village team.

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