On July 3, the Consumer Action Law Centre penned a letter to Federal Minister for Small Business Michael McCormack pleading with him to broaden an upcoming meeting with state consumer affairs ministers to cover all forms of retirement living, including retirement villages and residential parks.
In the letter, Gerard Brody, the chief executive of the law centre, warned that the problems raised in a joint Fairfax Media and Four Corners investigation, including fee gouging, churn, complex contracts and misleading advertising, weren’t isolated to retirement villages, but applied across the retirement housing sector, including residential parks.
He had seen the problems up close in a legal battle CALC had taken with retirement park operator Willow Lodge in Bangholme, Victoria, on behalf of 14 residents. The action, launched in late 2014, claimed the exit fees were an unfair contract term that operated as a penalty and the contract was harsh and unconscionable.
It was a sad and sorry tale, which would have ended poorly if CALC hadn’t intervened as most of the residents were pensioners or low income earners.
Some were suffering declining health, including two of the 14 residents battling cancer, one suffering a heart attack and another uncontrollable seizures, and one admitted to hospital 8-10 times to treat a vascular condition.
Litigation is stressful at any age, but when people are moving into their twilight years it can take a heavier toll.
CALC filed the case with the Victorian Civil and Administrative Tribunal (VCAT) on behalf of the residents at Willow Lodge, which operates under the umbrella of Palm Lake Resort, based in Queensland, boasting a portfolio of almost 30 retirement villages, aged care facilities and retirement parks.
At issue was the exit fee, which was calculated at 4 per cent a year for five years, equivalent to 20 per cent of the purchase price.
Eighteen months into the dispute, both parties settled. Willow Lodge agreed to wipe the exit fees of six of the 14 residents.
Two others had their exit fees reduced to a flat fee of 4 per cent of the park home sale price, and the rest settled with a cap of 12 per cent on the exit fee over 10 years. Some of the residents received a payment of $3000 for stress and inconvenience and Willow Lodge agreed to pay CALC’s costs.
Fast forward to today and CALC is still in dispute over the legal costs to be awarded.
Palm Lake chief executive Manuel Lang, who oversees Willow Lodge, said CALC had requested $329,000 in legal fees, which it sent to Blackstone Legal Costings for a review of the costs. He said he received a costing estimate earlier this week, which was below CALC’s estimate.
It means the dispute over legal costs is ongoing.
The takeout of the Willow Lodge dispute as the state ministers meet on August 31 with the federal minister for consumer affairs, are the issues of exit fees, legal costs and the time – and stress – involved when residents challenge an operator.
In the case of Willow Lodge, if the legal action hadn’t settled but proceeded to a four-week trial, the costs could have blown out to well over $500,000, which is unaffordable for most people, certainly the residents at Willow Lodge.
Lang says the problem arose when exit fees were first rolled out.
He admits it wasn’t handled well. “Willow Lodge was a legacy issue, which we have fixed,” he said.
But the point is it took years to get a resolution and if CALC hadn’t taken on the case, it would never have seen the light of day.
“An elderly consumer could not have litigated this claim without legal representation,” CALC said in a submission to parliament.
It is why an ombudsman is required.
The other issue that the Willow Lodge case raises is the thorny issue of exit fees; the main profit generator of retirement housing operators.
They vary contract to contract, village to village and are entirely unregulated. In the same village one resident can be on a contract that has a maximum exit fee of 20 per cent, while another resident might have a contract that has an exit fee of 40 per cent. They need to be regulated to stop the “financial sinkhole” that has been used to describe the sector.
Willow Lodge and the ongoing battle for legal costs, is a timely reminder of a federal parliamentary inquiry in 2007 that recommended the ACCC investigate whether exit fees should be banned.
It recommended the appointment of an ombudsman and said if state legislation wasn’t working, consideration should be given to putting it under federal corporations law.
CALC’s Brody recently said retirement living contracts are some of the worst contracts he had seen across many different industries.
In the case of one of the biggest operators, Aveo, which has more than 140 different contracts across its retirement village portfolio, the exit fees charged on its latest contract, the Aveo Way, cap out at 35 per cent after three years, while its Freedom Aged Care contract includes a 40 per cent exit fee after two years.
For a person that pays $600,000 for a one-bedroom unit in Sandringham it means they will have to pay $240,000 if they have to leave in two years.
Retirement villages are a massive scandal. The ACCC is investigating Aveo over some of the “more serious matters being raised”, including whether the contracts are unfair and unconscionable.
It prompted ACCC chairman Rod Sims to recently say there needed to be a wider regulatory review of the sector.
The states have primary responsibility for regulating this sector, which is why the relevant state ministers will get together with the federal minister on August 31 to discuss some of the issues raised in the joint Fairfax Media investigation.
That investigation laid bare massive flaws and gaps in the law, which needs to be addressed. It is why a national inquiry needs to be conducted, to ensure the problems aren’t papered over inconsistently by different states.
At the meeting Victoria should be grilled about why it continues to sit in a set of weak recommendations after conducting an inquiry into the sector last year.
Until there is a unified approach, legal action will remain unaffordable and little will change.