How is the amount of capital replacement fund determined? [s 92]
The amount to be held in the capital replacement fund and the consequential contribution by the operator is determined each year by a quantity surveyor.
Before a scheme operator decides a budget under section 93, the operator must obtain an independent quantity surveyor’s written report about the expected capital replacement costs for the village for the next 10 years.
Our quantity surveyor audits all the buildings and structures owned by the scheme operator, such as communal facilities, amenities and the accommodation units, plant, machinery and equipment, roads, paths, drainage, sewerage mains and landscaping. For each capital item, the likely cost and frequency of replacement are determined, and the data is displayed in tabular form for the report.
Replacing a village stand-by electricity generator is anticipated to be necessary in 3 years time at a cost currently estimated at $60,000. The contribution amount for the capital replacement fund in the budget for the current financial year must therefore include the annual proportional share for its replacement, i.e. $60,000 divided by three years equals $20,000. Next year, the estimated cost has increased to $68,000 and so the second year amount will be $24,000. The estimated cost in the third year is $70,000, so with the $44,000 accumulated, a further $26,000 is necessary to meet the cost.
The scheme operator must decide the amount to be held in the capital replacement fund for the village (the capital replacement reserve) having regard to the fund’s purpose, and the quantity surveyor’s report, which must be updated annually. In having regard to the quantity surveyor’s report, the scheme operator must use the scheme operator’s best endeavours to implement the quantity surveyor’s recommendations in the context of the objects of the Retirement Villages Act; and any circumstances relevant to the retirement village that apparently was not considered by the quantity surveyor.
The scheme operator may adjust the capital replacement fund contribution annually to ensure the capital replacement reserve is reached within five years.
Capital Replacement Fund Budget [s 93]
The scheme operator must adopt a budget (a capital replacement fund budget) for each financial year for the capital replacement fund.
The capital replacement fund budget must allow for raising a reasonable capital amount to—
- provide for necessary and reasonable spending from the capital replacement fund for the financial year
- reserve an appropriate proportional share of amounts necessary to be accumulated to meet anticipated major expenditure over at least the next 9 years after the financial year
The capital replacement fund budget must fix the amount to be raised by way of capital replacement fund contribution to cover the capital amount.
If the amount a scheme operator must spend on capital replacement at any time is more than the amount held in the capital replacement fund, the operator must pay the difference between the actual amount to be spent and the amount held in the capital replacement fund. Note however, the scheme operator must never pay into the capital replacement fund any amounts which are properly payable into the maintenance reserve fund, or any other fund.