Compulsory funds for retirement villages

You must open a separate bank account for the purpose of holding amounts standing to the credit of the capital replacement fund. The account must require your signature for any withdrawals.

The account name should include your name and the retirement village's name followed by the words 'secured capital replacement fund account'.

Once you establish the fund, a statutory charge is automatically created over it.

The purpose of the charge is to ensure that the fund is protected and available for use. It has priority over any other charge related to the fund.

The statutory charge continues until the village no longer operates and all former residents receive their exit entitlements.

Each year you must obtain an independent quantity surveyor’s written report about the expected capital replacement costs for the village for the next 10 years.

The quantity surveyor must hold a member grade, or fellow grade, membership with the Australian Institute of Quantity Surveyors.

The quantity surveyors written report must comply with any prescribed requirements under the Retirement Villages Act 1999 or the Retirement Villages Regulation 2018.

Using the recommendations from the quantity surveyors report, and having regard to the purpose of the capital replacement fund, you must decide the capital replacement reserve. The capital replacement reserve is the minimum amount to remain in the capital replacement fund each year to accumulate funds for future spending for the village.

The amount held in the capital replacement fund should reflect the amount you and the quantity surveyor anticipate is required to be spent during the current financial year, plus amounts reserved to be accumulated to meet anticipated major expenditure over at least the next 9 years.

You must use your best endeavours to implement the surveyor’s recommendations.

A full quantity surveyor report must be obtained every 3 years and an updated report every financial year in which a full report is not required. For more details about the capital replacement reserve, read section 92 of the Retirement Villages Act 1999.

You must provide a copy of the quantity surveyors written report to the chief executive within 5 months after the end of each financial year.

A budget for the capital replacement fund must be prepared each financial year and must be in the approved form (if one exists).

The budget must allow for raising enough funds to provide for necessary and reasonable spending from the capital replacement fund for the current year and also reserve an appropriate proportional share of amounts that need to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year (the capital replacement reserve).

The budget must fix the amount you must pay into the capital replacement fund contribution to cover these amounts.

The recommendations of the quantity surveyor must be considered when you decide the amount of the capital replacement fund contribution and capital replacement reserve.

A village resident or the residents' committee may request a copy of this budget in writing at least 28 days before the financial year begins. If requested, you are required to provide a copy of the budget at least 14 days before the financial year begins.

In addition to preparing the budget, you must ensure the account balance of the capital replacement fund meets the capital replacement reserve. At the end of each financial year, the balance of funds remaining in the capital replacement fund should reflect the quantity surveyor recommendations for the accumulation of funds for future spending.

The amount deposited into the capital replacement fund each year should not be equal to the amount of expenditure for that year.

If the amount you must spend on capital replacement exceeds the amount in the capital replacement fund, you must pay the difference.

The following payments must be paid into the capital replacement fund:

• amounts received under insurance policies for the destruction of items of a capital nature
• interest from investment of amounts held in the fund
• the capital replacement fund contribution for each financial year
• any amount required to be paid by a resident due to deliberate damage or accelerated wear and tear under the Act
• the amount any existing residence contract (commenced prior to 1 July 2000) requires to be paid from a resident's services charge towards capital replacement.

You must not invest amounts held in the capital replacement fund other than in an authorised investment under the Trusts Act 1973.

To set up the maintenance reserve fund, open a trust account that needs your signature for any withdrawals. If your retirement village has more than 1 operator, all operators will need to be signatories on the account.

Regardless of any change in operator, the fund holds all money in trust until the village no longer operates and all former residents receive their exit entitlements.

You must decide the amount to be held in the maintenance reserve fund for the village (the maintenance reserve) having regard to the fund’s purpose and the quantity surveyor’s report. The reserve is the minimum amount that must be available in the maintenance reserve fund.

To calculate the reserve, you must obtain a report from an independent quantity surveyor that details the village's expected maintenance and repair costs for the next 10 years.

A full quantity surveyor report must be obtained every 3 years and an updated report must be obtained every other year. The report must comply with prescribed requirements under the Retirement Villages Act 1999 and the Retirement Villages Regulation 2018.

The quantity surveyor must hold a member grade, or fellow grade, membership with the Australian Institute of Quantity Surveyors.

A budget for the maintenance reserve fund must be prepared each financial year. The budget must include enough funds for necessary and reasonable spending for the current financial year and reserve a proportionate share of funds to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year. The budget must be consistent with and implement any recommendations in the quantity surveyor’s report.

You will need to carry forward any surplus or deficit at the end of each financial year and account for the amount when preparing the following year's budget.

A village resident or the residents' committee may request a copy of this budget. This must be requested in writing at least 28 days before the financial year begins. If requested, you must provide a copy of the budget at least 14 days before the financial year begins.

If you must spend more than the amount in the fund, you must pay the difference. This is recorded as an interest-free loan from the operator to the fund.

You must make the following payments into the maintenance reserve fund:

• the residents' contribution
• interest collected from this fund – the Trusts Act 1973 provides direction on how to invest this money.

The Retirement Villages Act 1999 limits how the total general services charge can be increased by the scheme operator.

An operator must:

• look for cost-effective alternatives before increasing any charge
• not increase the general services charge by more than the Customer Price Index increase unless the village residents approve the extra increase by special resolution vote
• provide a document that explains the expenditure involved in providing each general service and any variation from the amount originally budgeted to the residents' committee if they request it.

However, residents are required to pay an increase if it is due to an increase in:

• rates, taxes or charges on the village
• a village employee's salary (if the law demands an increase)
• insurance premiums or excesses.

If you intend to offer a new service it must first be approved by special resolution by a majority of residents at a residents' meeting. If you need capital improvements in order to provide the services, the residents must also pass a special resolution asking you in writing for the capital improvement.

The law states that operators should:

• get at least 2 quotes for supplying the service from qualified trades people unless there are exceptional reasons that make this impractical
• give the residents' committee copies of the quotes and pay the costs of getting the quotes
• not charge residents for the new service before it is supplied.