Compulsory funds for retirement villages

The operator of a retirement village must establish 3 compulsory funds:

  • a capital replacement fund for replacing the village's capital items
  • a maintenance reserve fund for maintaining and repairing the village's capital items
  • a general services charges fund for the cost of services that are supplied or made available to all residents of a retirement village.

Capital replacement fund

A capital replacement fund is used to:

  • replace the village's capital items
  • pay quantity surveying fees (for reports prepared on this account)
  • pay the tax liability on this fund.

It is an offence to use money in the fund for any other purpose, including crediting other funds.

You cannot use the fund for capital improvement or to replace body corporate property.

The operator is solely responsible for contributing to the fund.

Setting up the fund

To set up the capital replacement fund, open a bank account that needs your signature for any withdrawals.

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

Creating a statutory charge

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.

Setting the capital replacement reserve

The reserve is the minimum amount that must be available in the capital replacement fund.

To calculate the reserve, obtain a report from an independent quantity surveyor that details the village's expected capital replacement for the next 10 years.

The quantity surveyor report must be obtained every 3 years. For more details about the operation of the capital replacement reserve, read section 92 of the Retirement Villages Act 1999.

Managing the capital replacement fund

A budget for the capital replacement fund must be prepared each financial year. The budget must include enough funds for current needs and for future capital reserves.

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 are required to give the residents' committee a copy of the budget at least 14 days before the financial year begins.

In addition to preparing the budget, you also need to ensure that the account balance of the capital replacement fund is more than the reserve, otherwise a payment must be made into the fund.

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

Making payments into the capital replacement fund

You must make the following payments into the capital replacement fund:

  • the capital replacement fund contribution
  • the amount required to increase the fund to the minimum reserve
  • the percentage of a resident's services charge that goes towards capital replacement (this only relates to resident contracts that commenced prior to 1 July 2000. The specific percentage is outlined in their contract)
  • insurance money collected from destroyed capital items
  • interest collected from this fund.

The Trusts Act 1973 provides direction on how to invest money for this fund.

Maintenance reserve fund

The maintenance reserve fund is used to:

  • maintain and repair the village's capital items
  • pay quantity surveying fees (for reports prepared for this account)
  • pay the tax liability on this fund.

Residents are solely responsible for contributing to the fund.

You cannot use the fund for day-to-day maintenance of the village, capital improvement or replacement, or body corporate property.

Setting up the fund

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.

Setting the maintenance reserve

The reserve is the minimum amount that must be available in the maintenance reserve fund.

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

The quantity surveyor report must be obtained every 3 years.

Managing a maintenance reserve fund

A budget for the maintenance reserve fund must be prepared each financial year. The budget must include enough funds for necessary and reasonable spending and for future expenses.

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

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, give the residents' committee a copy of the budget at least 14 days before the financial year begins.

In addition to preparing the budget, you also need to ensure that the account balance of the maintenance reserve fund is more than the reserve. If the amount in the fund is less than the reserve, you need to increase the residents' fund contribution.

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.

Making payments into the maintenance reserve 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.

General services charges fund

You must establish and keep a fund for general services.

These charges pay for services you supply to all village residents, for example:

  • management and administration
  • gardening and general maintenance
  • recreation or entertainment facilities
  • other services specified in the contract.

You must prepare a budget each financial year to plan for these costs and monitor actual spending against the budget. The budget must be in the approved form if one exists.

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

If the residents' committee requires a copy of the draft general services charge budget for the financial year:

  • they have to request it in writing at least 28 days before the financial year begins
  • you have to supply the budget to them at least 14 days before the financial year begins.

Increasing the total general services charge

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.

New general services

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.

Contact

General enquiries 13 QGOV (13 74 68)