Navigating the sales process - lessons from Estate of Madeline Cozma v Milstern Retirement Living Pty Ltd t/as Golden Lifestyles [2016] NSWCATCD 56

Disputes between operators and former occupants can arise during the sale of an interest in a retirement village premises, especially when that sale period is prolonged.   This case explains certain rights and responsibilities that arise during that sale process and provides a reminder that the NSW Civil & Administrative Tribunal (Tribunal) can waive or reduce departure fees payable to an operator under s 161 of the Retirement Villages Act 1999 (NSW) (Act) if it considers that the operator has caused or contributed to a delay in entering into a new village contract with an incoming resident. 

Background

Ms Cozma occupied a retirement village unit until she passed away in October 2005.  In July 2006, her estate (Estate) appointed a sales agent to sell her lease over that unit.  The sales agent and the operator were related legal entities.  The sales agent estimated the lease was worth $210,000 - $220,000.

Five years passed.  The lease remained unsold.  At one stage, there was a prospective sale of the lease for $90,000 but this sale fell through.   In October 2011 the Estate decided to appoint a second sales agent, which estimated the lease was worth $185,000. 

The operator initially refused to provide the second sales agent with the information it needed to market lease until such time as the Estate provided ‘vacant possession’ of the unit and paid the recurrent charges that had accrued in relation to the premises pursuant to s 152 of the Act.  It later relented and provided the information.

A further 2 years passed.  Neither sales agent successfully sold the lease.  On 12 September 2013, the Estate arranged for Ms Cozma’s former husband, Mr Safer, to move into the premises in exchange for $1,000.  The operator refused to enter into a village contract with Mr Safer.  The Estate then applied to Tribunal for the following orders:

• An order requiring the operator to recognise the right of Mr Safer to enter into a residence contract with the operator, pursuant to s 82 of the Act.
• An order requiring the operator to determine the amount of recurrent charges payable by the Estate in a way that reflected s 152 of the Act. 
• An order waiving or reducing the departure fees payable to the operator, pursuant to s 161 of the Act.

Operators only required to enter into village contract with certain relatives

The Tribunal determined that it could not make the order sought by the Estate.  It only had the power to make an order under s 82 of the Act in relation to a relative of a resident entitled to become a resident in their own right under s 81 of the Act.  Section 81 only conferred this right on a relative of a resident that is a retired person and who lived in the premises for at least 6 months before the resident died or vacated the premises, including the date that the resident died or vacated the premises.  Mr Safer did not have such a right under s 81 because he did not live in the premises until after Ms Cozma died.

Paying recurrent charges after the date of permanently vacating a premises

The Estate contended that it was only obliged to pay recurrent charges for the first 42 days after the date of Ms Cozma’s death under s 152(3)(a) of the Act.  The Tribunal rejected this contention as misconceived. 

The Tribunal observed that the Estate was a ‘former occupant’ for the purposes of s 152.  Section 152(3)(a) had to be read together with s 152(3)(b).  Together, these sections operated so that the Estate was required to pay the full amount of recurrent charges accruing in relation to the premises for the first 42 days after Ms Cozma’s death.  After that period, the Estate’s obligation was to pay the proportion of the recurrent charges reflecting the proportion of capital gain in the premises that the Estate was entitled to collect under the village contract.  Under the village contract, the Estate was entitled to 100% of the capital gain, and so continued to be liable to pay the full amount of recurrent charges accruing in relation to the premises.

Operators must not cause or contribute to delays in sales of leases

Under s 161 of the Act, the Tribunal can reduce or waive the departure fees payable to an operator if it considers that ‘any delay in the operator’s entering into a village contract with another person in respect of the premises is attributable to any action (including a failure to market or promote the premises) of the operator’.

The Tribunal determined that the operator had contributed to the delay in the sale of the lease interest by:  

• continuing to insist that the lease market value was approximately $210,000, despite no offers being made near this price for 10 years; and
• refusing to provide marketing information to the second sales agent until certain demands were met, despite having no right to do so under the Act or village contract.

The Tribunal made an order reducing the departure fees payable to the operator from 25% (as set out in the village contract) to 10%.   

Lessons for operators

It is important to have a full and proper understanding of all parties’ rights and obligations during the sale process.  An operator that improperly seeks to enforce rights or otherwise acts in a way that inhibits the sale of a premises may be seen to have contributed to delays in securing a new incoming resident.  The former occupant may respond by seeking an order waiving or reducing the departure fees payable to that operator pursuant to s 161 of the Act.  It may be prudent for operators to review the sales policies and procedures in their retirement village to determine having regard for the above findings of the Tribunal.

This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you.  Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.