Queensland Retirement Villages - You're going to need a bigger spreadsheet - Mullins Lawyers | Advisors | Partners (2024)

Feeling relaxed now you’ve finished your retirement village budgets for FY24/25? Sorry, but it’s time to start getting across the significant additional detail required for next financial year.

The Retirement Villages (Financial Documents) Amendment Regulation 2024 (Amendment Regulation) amends the Retirement Villages Regulation 2018 (RV Regulation) and was approved by the Governor on 14 June 2024.

The Amendment Regulation forms part of the legislative reform package that commenced with the Housing Legislation (Building Better Futures) Amendment Act 2017 and gives effect to new regulation-making powers inserted in the Retirement Villages Act 1999 (RV Act) by the Housing Legislation Amendment Act 2023.

The main objective of the Amendment Regulation is to improve the transparency, accountability and consistency of financial reporting by retirement village operators. As resident contributions and village expenditure are the most common sources of disputes between residents and operators, it is hoped that the changes introduced by the Amendment Regulation will reduce the number of disputes and complaints relating to these issues.

To achieve this, the Amendment Regulation prescribes the details to be shown in the following financial documents:

• retirement village budgets (village budgets) for the capital replacement fund, maintenance reserve fund and general services charges fund (statutory funds);
• annual financial statements (AFS);
• quarterly financial statements (QFS);
• audit reports for AFS (audit reports); and
• quantity surveyor reports (QS reports).

While the RV Act allows the regulator to issue prescribed forms for these financial documents, the regulator does not currently propose to do so. Operators may therefore continue using their existing accounting and reporting systems (adjusted as necessary), thereby reducing implementation costs.

Also, operators will not be prohibited from including other details in their financial documents, in addition to the mandatory content required by the Amendment Regulation.

Although the Amendment Regulation has commenced, transitional provisions mean that the changes will only apply to:

• village budgets for FY25/26 onwards;
• AFS and associated audit reports for FY25/26 onwards (note that AFS and audit reports for FY25/26 must be given to the regulator by 30 November 2026);
• QFS for financial quarters from 1 July 2025 to 30 September 2025 onwards; and
• QS reports prepared on or after 1 July 2024 (i.e. QS reports prepared in relation to village budgets for FY25/26 onwards).

While many operators will already meet some of the new requirements, the Amendment Regulation will require future financial documents to incorporate significantly more detail. That additional detail can be found in new Part 4A and Schedules 5A to 5C of the RV Regulation.

Operators will need to work through and familiarise themselves with this new mandatory content. It is recommended that this be done in conjunction with an internal or external accountant who will be involved in preparing the relevant financial documents.

Some of the more notable requirements include the following:

• Separate line items for various sources of income (or expected income in the case of budgets), including contributions/charges from residents/former residents and the operator;
• In respect of general services charges, separate line items for each of 10 specified expense types (e.g. audit, banking, electricity, cleaning, etc), plus any other item of expenditure that is “material” (within the meaning of the applicable Australian Accounting Standards);
• Comparisons of relevant amounts to the corresponding amounts in other financial documents (e.g. a budget or AFS for the previous financial year);
• Certain declarations by the operator regarding the preparation and accuracy of the AFS; and
• Disclosure notes regarding a range of issues, such as:
  • how contributions/charges were calculated;
  • commentary on surpluses/deficits;
  • the method of apportionment for expenditure shared between the village and another village, entity or purpose (e.g. “head office” expenses, co-located residential aged care facilities, etc);
  • an explanation of any material differences regarding the income, expenditure, surplus or deficit of a statutory fund, compared to the corresponding budgeted amount;
  • the basis of preparation of the AFS, including any applicable accounting standards and principles;
  • payments between the operator and a related party of the operator, relating to capital replacement, maintenance or general services for the village (note that, for this purpose, “related party” is defined broadly and includes entities in which the operator has an interest or from which the operator obtains a commission, fee or reward in relation to the entity’s supply of goods or services to the village or residents of the village); and
  • outstanding exit entitlements (or purchase monies for freehold villages) owed by the operator to former residents as at the end of the financial year and the reason they have not yet been paid.

To provide a flavour of the nature and scale of the changes, a more detailed sample can be found below. However, it is by no means intended as a comprehensive list.

The Amendment Regulation also introduces some minor changes in relation to operational documents. Operational documents are documents held by an operator that may be inspected or copied by a resident or prospective resident, upon written request.

Operational documents will now include:

• a QS report relating to the most recently adopted village budgets (and any updated QS report prepared since the full report); and
• any insurance policies paid for from the general services charges fund (i.e. not only the insurance policies required under section 110 of the RV Act).

The regulator has indicated its intention to issue financial guidance material and non-mandatory templates, to support implementation of the new requirements. These materials will hopefully prove useful to operators, as the Amendment Regulation is very detailed and not particularly easy to navigate.

A consultation draft of the Amendment Regulation issued in October 2023 was subject to industry stakeholder feedback, which resulted in a number of subsequent improvements. However, despite representations that an amended version of the draft Amendment Regulation would be circulated for further stakeholder feedback before finalisation, this did not occur. Accordingly, the Amendment Regulation unfortunately appears to contain a number of anomalies. It is anticipated that dialogue with the regulator will continue, in an endeavour to rectify these issues.

In response to the changes introduced by the Amendment Regulation, Queensland retirement village operators should:

• familiarise themselves with the new requirements and consider how they will comply with them, including any required changes to their accounting systems and staff training;
• refine these measures once the financial guidance material and non-mandatory templates are made available by the regulator;
• ensure their quantity surveyor is familiar and compliant with the new requirements;
• consider passing on to residents (as part of general services charges) the additional compliance costs associated with the new requirements (subject to the need to comply with the relevant CPI cap or obtain a special resolution, and the commercial realities of market forces and resident relations);
• check their residence contract templates – although the new requirements primarily represent an operational issue, some operators’ residence contracts refer to their statutory obligations regarding village budgets, AFS and QFS in more detail than others. If your residence contract template is now inconsistent with the RV Regulation, it should be updated; and
• seek professional advice if required.

If you would like to discuss these new requirements, please do not hesitate to contact me.