Retirement villages case study

The Retirement Villages Act 1999 sets out who should pay to repair or replace what are called ‘items of capital’.  An item of capital is broadly defined to include most items found in a village such as buildings, equipment, fixtures and fittings.  Section 97 says that operator cannot fund any costs of depreciation or capital replacement from recurrent charges payable by a resident.

A resident of a retirement village claimed that he had been overcharged for recurrent charges on items which he considered to be depreciation and expenditure on replacement of fixed items of capital.  These included repainting the outside of the village and all expenditure associated with the bore pump and sprinkler systems used in the landscaping, electrical and plumbing repairs and the replacement of items such as doors, patios, driveways, fences, roof tiles, clothes lines and guttering.

The Tribunal Member had to consider whether the items charged to the resident were capital costs or not.  The Member drew on definitions in the Act, previous Tribunal decisions, and dictionary definitions to draw the distinction between 'capital replacement' and maintaining items in a state of reasonable repair.  This distinction was then applied to each of the items raised by the resident.

The Member found that repainting the villas simply maintained the villas – a fixed capital item – in a state of good repair and could be recouped by the operators through recurrent costs.  The Member found that the replacement of fixed items of capital such as sprinkler heads and sprays, plumbing and electrical appliances, doors, driveways etc were capital replacement costs and should be borne by the operator.

However the cost of maintaining capital items in reasonable repair was not depreciation or replacement and expenditure such as repairs could be funded from recurrent charges.

The Tribunal Member ordered the village operators to refund to the resident those charges which constituted depreciation and capital replacement.