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24 Jul 2019

Mandatory buy-backs of units by operators in strata schemes

Important legal changes requiring mandatory buy-backs of retirement village units in strata schemes

This article originally featured in the Strata Community Association (Qld) June 2019 alert

Following the statutory introduction of mandatory buy-backs by scheme operators (“operators”) of licence or leasehold units in registered retirement villages in Queensland, there was some confusion in the industry as to whether these mandatory buy-backs extended to include the buy-back of freehold units in body corporate or strata schemes.

The Queensland Government recently clarified the position by enacting the Health and Other Legislation Amendment Act 2019 (Qld) which amends the Retirement Villages Act 1999 (Qld) to now include the mandatory buy-backs of freehold units in strata schemes.

Importantly, the new changes also capture situations where a resident is not the registered owner on the freehold title but rather derives their tenure in the unit through the ownership of shares in a company (ie company title villages).

The provisions came into effect on 11 April 2019, and have potentially far-reaching consequences for operators, residents, and body corporates.

This article will look at how the new laws apply and importantly also examine some of the potential practical and operational issues associated with the new changes.

When is an operator required to buy back the unit?

Operators are now required by law to enter into (and complete) a contract to buy-back a resident’s freehold unit in a retirement village:

  • for residence contracts terminated before 11 April 2019, on the later of 23 May 2019 or 18 months after the termination date; or
  • for residence contracts terminated after 11 April 2019, 18 months after the termination date.

Where a resident has died, an operator is not required to buy-back the unit until 14 days after the operator is provided with a copy of either probate or letters of administration of the former resident’s estate.

Nothing restricts a resident’s right during these buy-back timeframes discussed above to sell the unit to another person.

Can the statutory buy-back period be extended?

QCAT may upon application by an operator, make an order extending the 18 month buy-back period on the grounds of “reasonable excuse”.

This would require examining the factual circumstances where, for example, an operator could demonstrate that it had taken all reasonable steps to complete the sale, but have been prevented in completing due to the actions of a resident, outside of the operator’s control (for example where a resident mortgage is not discharged at completion).

How is the unit valued?

The parties need, at first instance, to try and agree on a purchase price.

If a purchase price cannot be agreed, then the purchase price will be determined by:

  • a valuation of the unit in the last 3 months; or
  • an operator obtaining a valuation of the unit within 14 days of the parties failing to agree on a purchase price.

The unit must be revalued every 3 months with the most recent valuation becoming the purchase price unless the parties otherwise agree.

How is an exit fee dealt with?

Any exit fee payable by a resident may be set-off against the purchase price under the buy-back contract. An exit fee is never payable before the buy-back contract has completed.

Cooling off period and statutory disclosure and warranties under Body Corporate legislation

The standard statutory 5 business day cooling off period which applies to residential property in Queensland is not applicable.

Nor do the statutory disclosure requirements and statutory warranties under the Body Corporate and Community Management Act 1997 (Qld) apply to a buy-back contract.

Duty, costs of selling and legal fees

No stamp duty is payable on the transaction, which would otherwise normally be payable on residential property in Queensland.

The costs of selling the unit are determined by the residence contract. An operator is entitled to recover reasonable legal fees from the resident.

Where a resident engages a real estate agent to sell the unit, the resident is responsible for the agents' fees and any sales commission, however, an operator is prevented from charging the resident any form of sales or other commission.

Potential implications

These changes are expected to potentially have significant implications on the management and operation of retirement villages which are part of a strata or body corporate scheme.

It can become even more complex in circumstances where operators of villages are or become “defunct” in operating and managing the village. The issue then becomes how does the role of the body corporate potentially change in relation to issues associated with the operation and management of the village, particularly in circumstances where the retirement village is still registered, and the body corporate may not have control over all of the scheme land, which still forms part of the village as a whole.

The other important issue is where an operator may not be able to buy-back the units due to financial circumstances.

All of these issues can present problems for body corporate managers, responsible for managing the body corporate.<

Another likely trend may be that the number of freehold retirement villages in Queensland will begin to decline as those units bought back by operators are then “converted” into either a licence or leasehold tenure structure.

This can be problematic, as a village may at any particular point in time have a different mix of resident tenure arrangements, with varying rights and obligations, making management and operation difficult in such circumstances.

Clearly, the body corporate in these circumstances will face many practical issues of being able to operate properly as required under the Body Corporate and Community Management Act 1997 (Qld.

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