The systemic charging of invalid fees on Victorian retirement village residents.
The legislative references re this issue are - 38(1) "adjusted maintenance charge" means the adjusted maintenance charge determined and indexed in accordance with section 38AA;
38(2) Despite anything to the contrary in a residence contract, a management contract or the by-laws a resident is not required to pay a maintenance charge to the extent to which it is greater than the adjusted maintenance charge.
38(4) Subsection (2) does not apply if the payment of a maintenance charge that is greater than the adjusted maintenance charge has been approved by resolution of a majority of the residents at a meeting of the residents or is approved by resolution of the residents committee.
THE PRIMARY PROBLEM - Every financial year the village operator fails to calculate a $ value for the Section 38AA ‘adjusted maintenance charge’. Every financial year the village operator fails to apply the annual Section 38.2 test of ‘is the operator proposed ‘maintenance charge’ to be greater than the Section 38AA cpi calculated ‘adjusted maintenance charge’.
Whilst many in the industry think the ‘maintenance charge’ and the ‘adjusted maintenance charge’ are one in the same, i.e. the ‘maintenance charge’ increased by cpi, they are very different animals.
‘Maintenance Charge’ – is the fee sought by the village operator.
‘Adjusted Maintenance Charge’ – is the cpi adjusted benchmark/base fee calculated each year as per Section 38AA of the Act.
Victorian operator ‘folk law’ has over time become in their mind ‘the law’, it is contended that it is practised by the great majority of them if not all. The ‘folk law’ as used by village operators is – Where the proposed increase in resident fees is not greater than cpi, resident authority under Section 38.4 of the Act is not required.
Operator ‘folk law’ is not how the Victorian Retirement Villages Act 1986 (the Act) actually works, Section 38 of the Act mandates that -
Every year in the life of a village (except the first), the operator is to calculate the $ value of the Section 38AA ‘adjusted maintenance charge’.
Every year in the life of a village (except the first), where the ‘maintenance charge’ as sought by the operator is to be greater than the Section 38AA cpi calculated ‘adjusted maintenance charge’, resident authority is required under Section 38.4.
That is the law the protects Victorian retirement village residents from rampant fee increases. The residents have the statutory right on an annual basis to choose which fee of the two they will pay.
This law is being ignored by operators, residents are being denied their statutory right to choose. Victorian retirement village residents are being charged invalid fees totalling if not ten of thousands, if not hundreds of thousands, millions of dollars in fees not authorised under the Act.
It is contended that most villages are not calculating the Section 38AA benchmark/base fee the ‘adjusted maintenance charge’ at all, simply increasing the operator’s ‘maintenance charge’ from the previous year by cpi. They mislead residents by advising them that they can simply increase the fee from last year by cpi whilst ignoring the annual test required under Section 38.2.
Here is a ‘real life’ example of how operators mislead residents through statements they make,
“In accordance with Section 38.2 of the Retirement Villages Act 1986, operators are permitted to adjust the maintenance fees in line with the current consumer price index (CPI)”, Section 38.2 says no such thing.
It is contended that the systemic actions of operators means residents are being charged a demonstrative $ amount of invalid fees. An actual example -
Table 1
Table 1 above shows that the operator had levied invalid fees totalling $81,471.24 over the years 20/21, 21/22, 22/23. Note from the table above -
For 2018/19 the S38AA ‘adjusted maintenance charge’ and the operator sought ‘maintenance charge’ had the same $ value. No further action required.
For 2019/20 the operator increased their fee by an amount greater than the cpi of 2.01%, on this occasion the operator sought the authority of a majority of the residents under s38.4. Residents granted the operator authority to levy a ‘maintenance charge’ of $89.04 being greater than the S38AA cpi calculated ‘adjusted maintenance charge’ of $85.77.
Here comes the operator ‘folk law’. For 2020/21 the operator increased their fee by cpi and advised residents they did not need resident authority to do it as the increase in the fee was not more than cpi of 1.93%. This action failed the annual test under Section 38.2.
Here is the ‘real law’. The operator levied a ‘maintenance charge’ of $90.83 which was greater than the s38AA cpi calculated ‘adjusted maintenance charge’ of $87.42, contrary to the provisions of Section 38.2 of the Act. The operator robbed residents of their statutory right to pay $87.42 under Section 38.4 of the Act. Total invalid fees in 20/21, $26,952.63.
For 2021/22 the operator again increased their fee by cpi and advised residents they did not need resident authority to do it. Under their ‘folk law’ the increase in the fee was not higher than cpi of 3.24% so resident authority was not required.
Under ‘real law’ the operator levied a ‘maintenance charge’ of $91.49, greater than the s38AA cpi calculated ‘adjusted maintenance charge’ of $88.11. Residents had the statutory power to decide which fee to pay, that power was denied them by the operator in breach of the Act. The total amount of invalid fees charged by the operator over 20/21, 21/22 was now $53,668.16.
For 2022/23 the operator again increased their fee by cpi and advised residents they did not need resident authority to do it. Under their ‘folk law’ the increase in the fee was not higher than cpi of 0.79%.
Under ‘real law’ the operator levied a ‘maintenance charge’ of $94.50, greater than the s38AA cpi calculated ‘adjusted maintenance charge’ of $90.97. Residents had the statutory power to decide which fee to pay, that power was denied them by the operator in breach of the Act. The total amount of invalid fees charged by the operator over 20/21, 21/22 and 22/23 was now $81,471,24.
For 2023/24 the operator again proposed to increase their previous fee by cpi, under their ‘folk law’ the fee increase was not higher than cpi of 7.1%. Surprisingly they sought approval for the operating budget to support the fee being asked. .
Under ‘real law’ the operator proposed to levy a ‘maintenance charge’ of $100.98, greater than the s38AA cpi calculated ‘adjusted maintenance charge’ of $97.42. On this occasion residents exercised their right under Section 38.4 and voted NO to the proposed higher fee, thereby choosing to pay the lower fee of $97.42. The total amount of invalid fees charged to date by the operator without statutory authority (s38.4) remained at $81,471,24.
For 2024/25 the operator did not seek a ‘maintenance charge’ greater than the s38AA cpi (4.47%) calculated ‘adjusted maintenance charge’, both had the same $ value of $101.77. The provisions of Section 38.2 of the Act had not been breached by the operator.
The total amount of invalid fees charged to date by the operator without statutory authority (s38.4) remained at $81,471,24.
Table 2
In the example shown in Table 2 above, each year in the life of a village (except the first) there are -
two $ values tracking side by side each year in the life of a village.
these two $ values can be identical.
Without resident authority each year, the operator ‘folk law’ practice of charging invalid fees will simply continue.
The ‘real life’ example outlined above is just one Victorian Retirement Village of which there are 467. If this was to happen just once in the life of each of the 467 villages the total amount of unauthorised fees paid by residents would be in the order of a staggering $77,055,000.00. The serious question is how many villages does this happen in and how many times does it happen over the life of that village. A simple preliminary audit of just asking the question, what is the current value of your Section 38AA annually calculated ‘adjusted maintenance charge’. All village managers could say what their ‘maintenance charge’ is, it is contended most would -
not know what the Section 38AA ‘adjusted maintenance charge’ is nor its $ value.
not know of their statutory obligation to calculate it annually under Section 38AA.
not apply the annual test as required under the provisions of Section 38.2.
deny village residents their statutory right to decide which of the two fees they will pay.
levy an invalid component in resident fees.
Operators incorrectly advise residents that s38.4 authority is not required in those years where the increase is not greater than cpi. It is contended that this action is Misleading or Deceptive under Section 18 of Australian Consumer Law. Refer Chapter 2 General protections, Part 2-1-18. Misleading or deceptive conduct, (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It can be misleading and deceptive whether the actions are intentional or not?
Whilst the total amount being charged without authority is difficult to quantify across the state it is clear operators are not calculating the Section 38AA cpi calculated ‘adjusted maintenance charge’. On this basis they cannot meet their statutory obligation under Section 38.2 This can be easily verified by calling a village and asking management what their current Section 38AA $ value is. It is contended they will readily tell you the ‘maintenance charge’ but not the ‘adjusted maintenance charge’ or even what it actually is.
If they do not know of or understand the s38AA cpi ‘adjusted maintenance charge’, it is almost certain that at that village residents will be paying an invalid element within their fees, fees not authorised by the residents under s38.4. As per the ‘real life’ example shown earlier this can be a substantial amount of money rising each year in the life of the villages across Victoria.
This ‘folk law’ has become ‘real law’ in the eyes of the operators and comes at a demonstrative financial cost of Victorian retirees. It has been allowed to happen because this and successive governments have failed to provide sufficient industry oversight to stop it.
The Minister responsible for the Victorian Retirement Villages Act 1986, the very purpose of which is to clarify and protect the rights of persons who live in or wish to live in retirement villages, must take immediate action to protect the statutory rights of residents granted them under Section 38AA, Section 38.2 and Section 38.4 of the Act.
The Primary Solution –
Give village residents back their statutory right to decide by vote what fee they will pay.
Issue immediate advice to all Victorian retirement village operators regarding the problem.
Provide assistance to operators to come up-to-date with their statutory obligations in relation to calculating the current value of and the application of the ‘adjusted maintenance charge’.
Institute both a short term and a long term Audit Program of this major problem.
These actions will stamp out if not the tens of thousands, if not the hundreds of thousands, if not millions of dollars of invalid fees being levied on vulnerable Victorian retirees.
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