Operators see costs going up and residents see services going down – what do the lawyers say about monthly fee conversations?

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Since the Government’s forced closure of pubs, clubs and community centres on March 23, both operators and residents have shared concerns with us about the impact COVID-19 may have on monthly resident fees and annual village expenditure.

In some villages, residents have requested monthly fee reductions, due to the closure of common facilities.

In others, managers have shared concerns about unexpected costs for infection control; and potential changes to service delivery.

What are the obligations of operators and residents in relation to monthly service fees?

It was a relief last week when Tammy Berghofer – from leading industry law firm, MinterEllison – gave us some legal insights on this front.

First up, there is no obligation to reduce monthly resident fees because of temporary closures ‘in compliance with legal directions’.

Tammy said:

“There is no legislative requirement for recurrent (non-optional) services charges (variously described as general services charges, recurrent charges or maintenance charges) to be reduced due to the temporary closure of facilities or cessation of activities within a retirement village in compliance with legal directions”.

She says these fees are not your normal consumer ‘fees for service’. They are the resident’s ‘contribution’ to running the village.

“These types of recurrent services charges in retirement villages are fundamentally different from many other fees or charges for common consumer services.

“As a general rule, these recurrent services charges are:

  • a resident’s individual contribution to the overall ongoing costs of operating the village (similar to strata levies or council rates) – they are not a ‘fee for service’;
  • ‘cost recovery’ only, with all charges applied to paying the costs of operating the village; and
  • levied under a budget set at the beginning of the financial year, which may not be able to be changed under relevant retirement villages legislation until the next year.”

She also talked about the possible impact of COVID-19 on the overall costs of the village over 12 months, which residents will need to take into account.

“The closure of facilities will not necessarily mean there is an overall reduction in operating costs.”

“The reduced operation of some facilities may result in lower costs being incurred throughout the year (such as certain maintenance or energy costs). However, other village costs may be increasing at the same time as a result of COVID-19 (such as additional costs of management, administration, and staff and resident communications to comply with government rules and safety guidelines)”.

“It may not be until the end of the current financial year that the ultimate cost impact can be determined with any certainty”.

Tammy also highlighted the importance of checking in with your industry legal partner early if you need clarification or support. She has made herself available to her clients – often times, at little or no expense.

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