As quantity surveyors, Whittaker & Associates provide several reports designed to assist retirement village scheme operators with their legislative obligations.

These reports include:

  • Maintenance Reserve Fund – Ten Year Forecast
  • Capital Replacement Fund – Ten Year Forecast
  • Opinion of Replacement Cost for insurance purposes

Some background context for the Maintenance Reserve Fund Levy

Retirement villages in Queensland are governed by the Retirement Villages Act 1999 (Qld) (Retirement Villages Act). The Retirement Villages Act was introduced to require greater transparency and accountability of each retirement village scheme in respect to residents. It creates extensive obligations for disclosure of information by scheme operators through a public information document (PID).

The Act also sets up comprehensive requirements for scheme operators, which of interest to quantity surveyors, include the establishment of funds for maintenance and capital replacement of the village, and the control of setting ongoing fees.

Understanding Charges to Residents

Once a resident takes up occupation of a unit, they will be liable to pay a general services charge and a personal services charge (if applicable). The general services charge has two main components:

  • the resident’s contribution to the costs of operating the village
  • the maintenance reserve fund levy

General services are services supplied, or made available, to all residents of a retirement village.

Examples of general services—

  • management and administration
  • gardening and general maintenance
  • a shop or other facility for supplying goods to residents
  • a service or facility for the recreation or entertainment of residents

The Retirement Villages Act does restrict the increase in general services charges. Specifically, the total general services charges cannot increase in any year by more than the Consumer Price Index – unless the increase relates to (s 106 Retirement Villages Act):

  • rates, taxes or charges levied on the village itself
  • salary or wages of persons employed in the village
  • insurance premiums or insurance excesses paid in relation to the village
  • maintenance reserve fund contributions.

What is a Maintenance Reserve Fund? [s 97]

The scheme operator is required to establish and keep a fund (the maintenance reserve fund) in a separate trust account which is to be used for maintaining and repairing (but not replacing) the retirement village’s capital items (s 97 Retirement Villages Act).

Residents are solely responsible for contributing to this fund, which is done by way of a maintenance reserve fund levy that forms part of the general services charge referred to above.

Payments are made into the maintenance reserve fund from:

  • the residents’ maintenance reserve fund contributions
  • interest received on investments belonging to the fund
  • any amount which the operator held in a similar fund before the commencement of the Retirement Villages Act in 1999

No amount standing to the credit of the fund may be used for a purpose other than—

  • maintaining and repairing the village’s capital items; or
  • paying the quantity surveyor’s reasonable fees for giving a report for section 98; or
  • paying tax on amounts paid into the fund under section 100(1)(b).

The scheme operator must not use the amount standing to the credit of the fund for—

  • the village’s capital improvement or replacement; or
  • capital replacement, maintenance or repairs of body corporate property to which the Body Corporate and Community Management Act 1997 applies.

Regardless of any change in who controls the scheme’s operation, the trust is irrevocable and continues until the village ceases to operate as a retirement village scheme and all former residents have been paid their exit entitlement.

How is the amount of Maintenance Reserve determined? [s 98]

The amount to be held in the maintenance reserve fund and the consequential levy on the residents is determined each year by a quantity surveyor.

Before a scheme operator decides a budget under section 99, the operator must obtain an independent quantity surveyor’s written report about the expected maintenance and repair 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 repairs and maintenance is determined, and the data is displayed in tabular form in the annual report.

Example—
Painting of an item of village property is anticipated to be necessary in 3 years time at a cost currently estimated at $3,000.

The contribution amount for the maintenance reserve fund in the budget for the current financial year must therefore include the annual proportional share for painting of $1,000. Next year, the estimated cost has increased to $3,400 and so the second year levy will be $1,200. The estimated cost in the third year is

$3,500, so with the $2,200 accumulated, a levy of $1,300 is necessary to meet the cost.

The scheme operator 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 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 were not considered by the quantity surveyor.

There are no restrictions on increases in the maintenance reserve fund levy as there are with the general services charge, but the levy itself must be determined based upon the quantity surveyor’s report. It is important to bear in mind that it is likely for the maintenance reserve fund levy to be higher in older villages than it will be in newer villages.

Maintenance reserve fund budget [s 99]

The scheme operator must adopt a budget (a maintenance reserve fund budget) for each financial year for the maintenance reserve fund.

The maintenance reserve fund budget must allow for raising a reasonable amount for maintenance and repairs to—

  • provide for necessary and reasonable spending from the maintenance reserve 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 maintenance reserve fund budget must fix the amount to be raised by way of contribution to cover the estimated recurrent expenditure for maintenance and repairs.

If, at the end of a financial year for which a budget for the maintenance reserve fund is adopted, there is a surplus or deficit, the surplus or deficit in the maintenance reserve fund must be carried forward and taken into account in adopting the budget for the general services charges for the next financial year.

If the amount a scheme operator must spend on maintenance or repairs at any time is more than the amount held in the maintenance reserve fund, the operator must pay the difference between the actual amount to be spent and the amount held in the maintenance reserve fund. The amount paid is to be treated as an interest free loan from the scheme operator to the maintenance reserve fund. Note however, the scheme operator must never pay into the maintenance reserve fund any amounts which are properly payable into the capital replacement fund, or any another fund.

Continue reading about the Capital Replacement Reserve Fund.

What are Retirement Villages?

Retirement villages are premises where a community of seniors live in independent living units or serviced units, and share common facilities and amenities.

Department of Housing and Public Works – QLD Government

Essentially Retirement Villages are communal, self-contained, relatively secure housing environments for older people. They offer a wide range of living options including high-rise apartments, medium-density housing, townhouse developments and even luxurious, resort-style complexes with extensive facilities and services.

Queensland law handbook

General Services charges are distinct from personal services charges, which are optional charges for services provided to an individual resident. They may include charges for services such as laundry, meals, cleaning of the resident’s accommodation unit and other personal services. There are no restrictions on the operator to increase personal services charges.

Definitions – Capital Items

What are capital items?

capital items include the following—

  • all buildings and structures located in the retirement village and owned by the scheme operator, including the communal facilities, amenities and accommodation units, (other than items that, under the residence contract, are to be maintained, repaired and replaced by the resident);
  • all plant, machinery and equipment used in the operation of the village, (other than items that are body corporate property); including for example — communal hot water and air conditioning services, kitchen and dining room equipment, community facility furnishings, gardening equipment, village bus or transportation services
  • all village infrastructure owned by the scheme operator; including for example —roadways, pathways, drainage, sewerage mains, landscaping, electrical distribution systems, water services and connections and distribution systems

What is a capital improvement?

  • the first time provision of a capital item

What is maintenance of a capital item?

  • the upkeep of the capital item in good condition and efficient working order

What is meant by repairs to a capital item?

  • the restoration of the item by fixing or replacing parts of the item

What is meant by replacement of a capital item?

  • the substitution of the same type of item or an equivalent item