Stewart v Villaggio Italiano Limited
[2015] ACAT 34
•13 May 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
STEWART v VILLAGGIO ITALIANO LIMITED
(Retirement Villages) [2015] ACAT 34
RV 14/03
Catchwords: RETIREMENT VILLAGES - property insurance – annual budget – resident consent – recurrent charges
Legislation cited: Aged Care Act 1997
Retirement Villages Act 2012 ss 10, 145, 159, 162, 163, 501
Cases cited:Queens Lake Village Pty Ltd v Queens Lake Village Residents Association [2011] NSWDC 21
Tribunal: Mr C.G. Chenoweth – Senior Member
Date of Orders: 13 May 2015
Date of Reasons: 13 May 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL RV 14/03
BETWEEN:
MARY MARGARET STEWART
Applicant
AND:
VILLAGGIO ITALIANO LIMTED
Respondent
TRIBUNAL: Mr C.G. Chenoweth – Senior Member
DATE: 13 May 2015
ORDER
The Tribunal Orders That:
1.The spending on the property insurance item for the 2014 – 15 budget is to be reduced to the sum of $15,080.
………………………………..
Mr C.G. Chenoweth
Senior Member
REASONS FOR DECISION
The Property
The respondent is a not-for-profit community benefit organisation. It operates a retirement village and aged persons hostel at Page in the ACT, known as ‘Villaggio Sant’Antonio’. This is referred to as ‘the property’. One part of the property consists of 60 self-care residential units, in 30 separate duplex buildings with two units in each. These units are for residents who can manage their own domestic affairs and live independently, and their units are referred to in this decision as the ‘villas’.
As part of the property, there is a recreation hall with facilities for the residents. On the property, the respondent also operates a hostel for the accommodation of people who need a higher degree of care, and where services such as meals, laundry, personal care and other domestic requirements are provided. This unit caters for both permanent residents and for those who may be requiring short term respite care. This part of the complex includes a dementia ward, for those needing the specialised care that this condition requires. In addition to this, there are the usual administrative offices and facilities to maintain the operations of the property.
The residents of the villas occupy them under a licence agreement. The applicant and her husband entered into a licence agreement with the respondent on 10 April 2012 (‘the licence agreement’). Clause 11 of the licence agreement granted the applicant and her husband the right to occupy a villa from the date of the licence, and to use, in common with the other residents and with the respondent, the common areas and communal services of the complex.
The licence provided in clause 15 as follows:
The Licence confers on the Resident contractual rights only which are personal to the Resident and does not confer on the Resident any estate, lease, tenancy or interest whatsoever in the Villa.
The licence contained restrictions on the right of the respondent to terminate it unless the condition of the occupants declined to the point where they could no longer effectively manage their personal affairs and required a higher degree of care, or they otherwise breached the terms of the licence. This situation does not arise in the present case. The licence agreement also contained a number of other obligations, including the obligation to pay for such charges as electricity, and to maintain the villa in a good state of cleanliness and not to disturb the quiet enjoyment of the other residents.
The licence agreement included a schedule of prescribed financial and other information. That schedule (schedule 1) included at item 8: "Insurance costs relating to the directors, employees and volunteers of Villaggio." It did not refer to property insurance. Other versions of the licence agreement did include a reference to property insurance in that schedule.
At the same time that the applicant entered into the licence agreement, she and her husband also entered into a loan agreement. The loan agreement required the applicant to make a loan to the respondent, which was not repayable during the term of occupancy of the applicant. The loan agreement provided further in clause 13 that upon leaving the villa, the loan was to be repaid less certain retention requirements calculated on the length of time that the applicant had occupied the villa.
As part of the management of the property, the residents of both the villas and the hostel are required to pay charges to the respondent, to pay for the costs of the maintenance of the complex. The obligation to pay the fees is set out in clause 31 of the licence agreement. Schedule 1 to the licence agreement sets out the prescribed financial and other information, to be used in calculating the fees payable by the residents. An annual budget is prepared by the management, and the fees payable by the residents are based on that budget, as a way of recovering the costs necessarily incurred in the operation of the villas.
Retirement Villages Act 2012 ("the Act")
Residential arrangements for the provision of accommodation for older people as described above are commonly provided by not-for-profit, church or community organisations as well as those that are operated for private profit. Their operation is governed by the Act.
Section 10 of the Act defines a "retirement village" as
(a) a complex containing residential premises that are –
(i) predominantly or exclusively occupied, or intended to be predominantly or exclusively occupied, by retired people who have entered into village contracts with an operator of the complex; or
(ii) prescribed by regulation; but
(b) does not include any of the following:
(i) any building or part of a building used or intended to be used for the provision of residential care under the Aged Care Act 1997 (Cwlth) by an approved provider under that act;
(ii) a building or part of a building intended to be used for the provision of respite care under the Aged Care Act 1997 (Cwlth);
(remaining provisions not relevant.)
The 60 villas that form part of the property constitute a retirement village within the meaning of the Act, and the provisions of the Act apply to it. The hostel and dementia ward are excluded because they fall under the Aged Care Act 1997 (Cth).
The provisions of the Act are intended to ensure that residents in a retirement village have an opportunity to be involved in management decisions that affect them, particularly in relation to the charges that are made by the operator for the running expenses. To the extent that those charges increase, they affect the finances of the residents because of the obligation under the licence agreement to pay fees while they are in occupation.
The dispute that has arisen in this case concerns whether the operator may include within the annual budget for the 2014 – 15 year (and thereby recover as part of the recurrent costs) the costs of insuring the villas against loss and destruction. The contention of the applicant is that it is not open to the operator to do this, and that the operator must pay those costs from other resources.
Obligation to insure and annual budget
Section 145 (1) of the Act requires the operator to insure and keep insured a retirement village in accordance with the section. The section prescribes the liabilities against which the insurance must be taken out. Subsection (3) provides as follows:
(3) The village must have insurance that –
(a)covers the following:
(i)damage;
(ii)costs incidental to the reinstatement or replacement of insured buildings;
(iii)public liability; and
(b)provides for the reinstatement of property to its condition when new.
Subsection 145 (7) provides as follows:
The operator may fund insurance required under this section from recurrent charges if the cost of the insurance is included in the approved annual budget.
Section 159 of the Act requires the operator of a retirement village to give to each of the residents a copy of the proposed annual budget for each financial year prior to the beginning of the financial year to which the budget relates. Under section 159(5) the budget must be accompanied by a statement seeking the resident’s consent to spending the money in the way set out in the budget. If a resident does not give consent, it is open to either the respondent or a resident to apply to the tribunal for an order as to whether the amount should be included in the approved budget.
If the residents fail to approve the budget under section 162 of the Act, then either the operator of the village or a resident may apply to the tribunal for an order in relation to the spending proposed for that financial year. Section 163(2)(e) allows the tribunal to decide that there is to be no spending, or reduced or increased spending, on a particular item in the proposed annual budget. It is this power of the tribunal that has been invoked in the present case.
A budget for the 2014 – 15 year was prepared by the respondent. It included an item of $19,000 for "property insurance". The budget was considered by a meeting of residents on 3 June 2014. A motion was passed that "Villa residents reject the self-care residents proposed 2014 – 15 services budget on the grounds that property insurance should not be paid out of recurrent charges on villas that residents do not own." There was also significant discussion at the meeting about other items in the budget.
On 11 June 2014, the applicant filed an application in the tribunal seeking an order under section 162 (1) of the Act on three grounds. They were:
a) that insurance not be included in recurrent charges for the 2014 – 2015 budget;
b) that item 5 of the schedule to the then current licence agreement be set aside on the basis that the provision conflicts with section 145 (7) of the Act; andc) a further interim order under section 163 (2) (a) allowing spending on all items of the proposed annual budget other than insurance.
The matter came on for a directions hearing before Member Daniels on 9 July 2014. By consent, an order was made under section 163 (2) (a) of the Act that all items of the budget for 2014 – 15 other than the item for property insurance of $19,000, be approved. Issue (c) has therefore been determined.
Applicant’s submissions
The applicant submitted that there were five issues for determination:
(a) whether residents have an obligation to pay property insurance out of recurrent charges;
(b) whether an obligation to pay for property insurance is inconsistent with section 145 (7) of the Act;
(c) whether there is a reasonable factual basis for the amount claimed in the 2014 – 2015 budget;
(d) whether by agreeing to pay in the past a precedent has been set that should be followed; and
(e) whether insurance for the property should be paid from other income or assets of the respondent.
The applicant noted the provisions of section 501 of the Act, which preserves contracts entered into prior to the Act coming into force.
The applicant argued that the respondent would have substantial reserves and assets from which it could pay the insurance premium, thereby relieving the burden on the residents, many of whom were on fixed incomes. The applicant noted that under the terms of the loan agreements with residents, the respondent was entitled to retain a portion of those loan amounts depending on the length of time that the resident had occupied the villa. She argued that this would provide a source of revenue from which such items could be paid.
Prior to the hearing, the respondent had provided to the applicant details of the insurance policy and quotations upon which the budget item for property insurance had been prepared. The applicant questioned whether those allocation of costs between the villas and the other parts of the property were reasonable, having regard to the values of the villas and the other buildings.
The applicant did concede that there was nothing in any of the versions of the licence agreement which amounted to a commitment by the respondent not to include the cost of property insurance in the annual budget for approval by the residents.
The applicant submitted that in the cases of versions of the licence agreement that did not include a reference to property insurance in their schedules of matters to be calculated in determining the recoverable fees, the occupiers could reasonably have inferred that the cost of property insurance would be borne by the operator.
The applicant handed up a list of authorities, but the only one referred to was the case of Queens Lake Village Pty Ltd v Queens Lake Village Residents Association [2011] NSWDC 21. This was an appeal from the Consumer Trader and Tenancy Tribunal (CTTT) in New South Wales. The CTTT had refused to include within an approved budget for the Queens Lake retirement village an amount for property insurance, and a further amount for corporate recharge expenses. The village was operated by a company with a substantial interest in a number of retirement villages and nursing homes. The issue of corporate recharge expenses is not relevant in this case.
The CTTT refused to allow the insurance charge as a component of the budget because there was insufficient evidence to demonstrate that it related to the village itself, and there was no evidence which would have allowed the tribunal to exercise discretion to allocate a portion of the insurance charge to the budget for that village. Similarly, in the case of the corporate recharge expenses, there was no evidence which could persuade the tribunal to allocate those to the particular village. The appeal by the operator was disallowed.
Respondent’s submissions
The respondent pointed to its statutory obligation to insure the property. In addition to this obligation (and the insurance policy) preserving the property of the respondent, it also provides a substantial benefit to the residents. If a fire or other catastrophe was to occur and there was no insurance, the residents could be left without a property to occupy. Obviously, the property has to be insured as a matter of both statutory obligation and commercial reality. The only question is whether the residents are required to pay for that through their recurrent charges.
The respondent does have assets arising both from retention from loan accounts and from its investment activities, but it is a matter for it to determine how these are used to advance its objects. It is not open to this tribunal to determine that it should apply its funds in one manner rather than another, or to determine that recurrent charges should not include the recovery of property insurance under section 145(7) of the Act simply because the tribunal or the residents think that the respondent should allocate its funds differently.
The approved annual budgets have included the component for property insurance of the villas over a substantial period of time. The respondent also pointed to provisions in the schedules to the versions of the licence agreement referring to recovery of "any other costs charge or expense necessary for maintaining the common services and amenities available to residents."
Consideration
The provisions of the Act referred to in paragraph 14 make it clear that the obligation upon the respondent is to take out proper insurance for the villas. Section 145(7) also makes it clear that the cost of that insurance may be included in the annual budget upon which the recurrent charges are calculated. If the residents do not approve the annual budget, then it is open to the tribunal under section 163 to make an order that the item be included in the budget, with the consequence that this would then be able to be recovered through recurrent charges from the residents.
As a matter of statutory interpretation, the right of the respondent to recover charges for property insurance under section 145 (7) must override any gap or provision in the agreements, particularly in cases where there is no promise or covenant in those agreements that the respondent will not seek to recover the property insurance charge through the approved budget. The item is directly relevant to the operation of the villas, there was no evidence that it was so unreasonable that the tribunal ought to question it, and indeed on the material produced before the tribunal by way of the insurance renewal advice and supporting information, the charge for insurance of the property does not look unreasonable.
I am therefore satisfied that the inclusion of the cost of property insurance directly related to the insurance of the villas is a cost which is recoverable from the residents through the approved budget process. If the residents do not approve the budget, then the tribunal may exercise its powers under section 163 (2) of the Act.
There were submissions at the hearing that the allocation of costs between the villas and the other parts of the property were unfairly weighted against the villas. The respondent’s representative indicated the basis of the allocation of costs. The insurance material indicated the values that had been attributed to each of the buildings in the property. It also included a general component for such things as debris removal which could apply across all parts of the property.
At the end of the hearing I discussed with the parties the difference between their respective views as to the amount of reasonable insurance. The applicant conceded that the figure of at least $15,080 was appropriate for the insurance of the villas. As this was a sum of less than $4,000 per annum spread over the 60 villas I suggested to the parties that they confer and see if they could reach agreement on this point. The parties did so and by an application filed in the tribunal on 25 September 2014 agreed that if the tribunal determined that property insurance is to be included in the 2014-15 budget for the village, then the appropriate amount was to be $15,080. Part of the application for a consent order was that any back payment required to pay the insurance costs would be paid via an increase in the weekly recurrent charge for the remainder of the financial year, rather than a lump sum payment from each resident.
This agreement by the parties has therefore removed from the tribunal the obligation to determine the amount that should be included in the budget.
As the parties have agreed on the amount of the insurance premium referred to in paragraph 35, the order will be that the spending on the property insurance item for the 2014 – 15 budget is to be reduced to the sum of $15,080.
It is not open to the tribunal to decide that the inclusion of an item in the budget, or the charging of it to residents, should not constitute a "precedent" for future years. Every application must be considered on its merits, having regard to the facts at that time. Accordingly, the tribunal declines to make any order relating to the precedent value or otherwise of this decision. Similarly, the tribunal has no power to make a decision about how the respondent allocates its funds. There would be many commercial and community considerations to be taken into account in any such decision, and there is no power in the tribunal to order that a particular item of expense be paid from funds other than the residents fees. All the tribunal can do is determine that an amount should be allowed, or not allowed or varied.
………………………………..
Mr C.G Chenoweth
Senior Member
HEARING DETAILS
FILE NUMBER: | RV 14/03 |
PARTIES, APPLICANT: | Margaret Mary Stewart |
PARTIES, RESPONDENT: | Villaggio Italiano Limited |
AGENT FOR APPLICANT | Ms J. Davenport |
SOLICITORS FOR RESPONDENT | Mr M. Giugni |
TRIBUNAL MEMBERS: | Mr C.G Chenoweth – Senior Member |
DATES OF HEARING: | 23 September 2015 |
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