The Retirement Villages Association (RVA) expects the current Ministry of Housing and Urban Development (Hud) review of the Retirement Villages Act 2003 will continue under the new government.
That's even though I regard the grounds for Retirement Commissioner Jane Wrightson's call for such a review was based on work that can only be described as downright shoddy.
(Anybody interested in why I say this can read my BusinessDesk column published in June 2021 here: https://businessdesk.co.nz/article/cffc-paper-on-retirement-villages-was-shoddy-work)
RVA chair Graham Wilkinson says the stated aims of Hud's review, to balance the rights of residents and operators to ensure fairness, is “a motherhood and apple pie” type of goal.
“Fairness” in some people's eyes can mean anything from entirely ripping up and re-writing existing contracts to mandating practices the industry is already voluntarily implementing.
For example, about 75% of villages have already stopped charging weekly fees once a resident has moved out – that usually means they've died – and about 70% of villages already pay some form of compensation if they take too long to resell a unit, Wilkinson says.
But the “devil in the detail” hangs on how you define “too long” and what compensation you regard as fair.
Hud's discussion paper appears to show the ministry has already made up its mind on a number of points, including imposing a mandatory period within which village operators have to repay a departing resident.
Mandatory options
Hud has canvassed opinions about whether it should impose a mandatory six-month or 12-month period, whether this requirement should be made retrospective and whether not-for-profit operators should be exempt.
The RVA is opposing both retrospective requirements and the imposition of mandatory repayment periods.
I tend to agree with this position – the larger operators already repay departing residents' estates fairly promptly and much of the tardiness is by the not-for-profit and smaller operators which simply cannot afford to pay until the departing resident's unit is resold.
And retrospective legislation is always abhorrent – people and companies who enter into contracts in good faith based on current laws should be able to rely on the law upholding their rights.
Apparently, some residents want a much more radical law change.
A recent column published by Stuff, “Retirement villages can afford to treat customers better,” has argued that the buyback period be just 28 days and that “operators should cough up.”
This is just silly. The heirs of an old person who dies while occupying their own home have no such rights or guarantees.
They have to wait for probate, which normally takes about six months, and it usually takes significantly more than 28 days to get a house emptied of personal belongings, readied for sale (most villages undertake extensive refurbishment) and sold, then settled, before the heirs can inherit.
Twiddle their thumbs
Personally, I say, the heirs can twiddle their thumbs; I see no reason why there's any such urgency for them to get their hands on their inheritance.
The author's view was also based on a mix of retirement village revenue and profits which she admits is “a slight muddle” but still says provides “valuable perspective.”
Poppycock, says anybody who understands the difference between revenue and profit.
As for whether operators can afford such a short payment period, the author appears to be relying on the reported profits of the listed operators without any awareness that much of these “profits” are unrealised.
Two of the listed companies, Ryman Healthcare and Oceania Healthcare, have been cash-flow negative for years.
Reprehensibly, in my opinion, these two companies have effectively been borrowing to pay dividends, but both have now suspended dividend payments.
One area in which I take issue with the RVA is their desire to retain the role of villages' statutory supervisors within the current dispute resolution process.
The RVA's strongest argument against change is that the Retirement Commissioner's own statistics showed within the last reported six-month period, there were 334 complaints representing about 0.66% of retirement village residents in NZ.
Insignificant complaint numbers
As the RVA argues, complaint numbers are insignificant and the industry has “an excellent rate of resolving these complaints at village level.”
The Retirement Commission has asserted that current complaints levels don't accurately reflect resident satisfaction levels but has provided no evidence to back this up.
Changing the law based on an unsupported assertion should be anathema.
The RVA has offered to fund a research role at the commission for a two-year period “to gather quantitative evidence as to resident dissatisfaction and how the complaints system is currently working.”
Which looks like a sensible compromise to me.
The current disputes resolution process involves the operator initially trying to resolve the dispute – according to the RVA, more than 61% of disputes are resolved within the first 20 working days – then bringing in the operator's statutory supervisor if agreement can't be reached.
If the supervisor gets nowhere, the operator can appoint a panel of people approved by the Retirement Commissioner (and only approved people) to adjudicate and impose a solution.
The RVA has suggested that a simple way to deal with the perceived lack of independence is to take away the operator's power to appoint the panel and give it to the Retirement Commissioner.
Again, that seems like a sensible compromise to me and one that won't add costs.
A closed mind?
But it appears that Hud has already made up its mind, asserting baldly that “the scheme is not independent from operators.”
As for the costs, a cost-benefit analysis by consulting firm Martin Jenkins estimates the current scheme costs $7.676 million.
It estimates making changes to the status quo could raise that cost to between $11.250 million and $28.865 million, while introducing a new commissioner-based scheme would cost between $8.47 million and $16.118 million.
The alternative of using an existing disputes resolution provider would cost between $7.739 million and $15.424 million, Martin Jenkins says.
The RVA takes issue with these estimates saying that “some assumptions used to estimate the costs of the different proposals seem arbitrary,” especially the assumption that if a new dispute resolution scheme was introduced, the number of complaints would rise.
It also notes that different options have different start dates, “making it hard to compare the present value of options.”
It also notes a contradiction within the Martin Jenkins report in that option 2, adding a few changes to the status quo, is said in an appendix to save 50% on legal costs but the report says elsewhere that the legal costs would increase under this option.
Trustee company track records
The statutory supervisors are mostly trustee companies, such as Covenant Trustees Service, Trustees Executors and Guardian Trust, and they levy fees against the villages for which they act as supervisor.
I have a jaundiced view of these companies because of their track record through the wholesale collapse of finance companies from 2007.
Covenant was trustee to one of the worst, Bridgecorp, whose founder, Rod Petricevic, was jailed, and about 14 other collapsed finance companies, including one of the few survivors, Geneva Finance.
Guardian Trust was trustee for Hanover Finance and at least eight other failed finance companies and investment funds and it has since merged with Perpetual Trust which presided over Provincial Finance, Nathans Finance, Capital + Merchant, Lombard and many more.
Trustees Executors was trustee for South Canterbury Finance.
In my experience, these trustee companies, which were held out to investors as providing protection, were little more than box-tickers and fee collectors, an added cost for no practical benefit.
But Wilkson says the supervisors play a different role in the retirement village industry beyond being an asset custodian and their role in settling disputes, something he has personal experience of.
His Generus Living Group was invited by the supervisor to buy into the Holly Lea village in Christchurch at a time when it was struggling financially.
Trustees vs receivers
Arguably, receivers play a similar role, but Wilkinson reckons receivership generally produces worse outcomes and certainly generates negative publicity, something supervisors operating behind the scenes can avoid.
The publicity generated by a receivership would also carry a contagion risk for the rest of the industry, he says.
“There have been failures in NZ, but it hasn't affected residents because a commercial solution has always been found.”
The trustee companies were set up as “the ambulance at the bottom of the cliff rather than the fence at the top.”
But in recent years, these companies have improved their ability to “impose” themselves on management when villages appear to be getting into financial strife or the manager acting in inappropriate ways, he says.
“They have good common sense about what the issues are.”
Wilkinson feels that the Hud review has ignored the role these companies currently play in resolving disputes.
Clearly, the new government is a very different beast. I'd guess its views of the retirement village sector are likely to be more industry-friendly than the outgoing government.
But at this stage, it's anyone's guess as to how much of the Hud view it will accept.
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Great article thanks, the naivety of the commentariat in the mainstream non financial media never ceases to amaze. Slightly off topic, do you know why these companies specifically OCA report they're 'gearing' as a ratio between debt and debt plus equity? I have never seen this before, caring is usually just a debt to equity ratio. They are defining it as a debt as a percentage of debt plus equity, which in these cases is very different even from total assets.