30 July 2019
A lack of impartial valuers, and legal minefields created by retrospective legislation, have been among the problems implementing mandatory buyback laws which are considered a test case for Australia.
The Queensland Government’s mandatory buyback reforms commenced in May 2019.
The reforms require village operators to purchase unsold freehold, leasehold and licence tenure units, if these units remain unsold 18 months after resident has terminated his or her right to reside in the village. This includes units vacated before May 2019.
The reforms have been highly contentious, mainly because of concerns from retirement villages about increased costs and the fact they are being forced to purchase units which are owned under legal title by residents.
They also come as the NSW Government considers how best to introduce mandatory buyback reforms, with key issues including how best to value units and also whether the legislation should apply to existing or only future unit owners.
Given this, the implementation of the Queensland reforms is being closely watched, given it is something of a test case for NSW.
Property and Legal principal David Pyne, who acts for both villages and residents and is pictured above, said the legislation has certainly not been without its difficulties, particularly in regard to determining the ultimate price paid by village operators.
Under the Queensland legislation, the village operator and unit owner must, in the first instance, attempt to agree on a purchase price.
If a purchase price cannot be agreed, then the purchase price will be determined by:
- a valuation of the unit in the last three months; or
- an operator obtaining a valuation of the unit within 14 days of the parties failing to agree on a purchase price.
Mr Pyne said many valuers had been reluctant to assess individual units, because such valuing was a niche area and as a result they found it difficult to price their services and avoid conflicts of interest.
“You and I get a whole house valued, the valuer can do that pretty easily by desktop for a couple of hundred dollars,” Mr Pyne said.
“But it's a massive exercise to do it (for retirement village) because it’s not just the bricks and mortar and location, it's also about contracts and they're all different. So to do it and quote for it presents challenges and pricing difficulties.
“So there's a real skill shortage of valuers who know the real issues at play, and secondly, there's a pricing issue.
“But thirdly, the biggest one that we discovered was conflict. A lot of the valuers don't want to go in and value against one of their bigger clients who pay them more handsomely in relation to doing more holsitic valuation work.”
Mr Pyne said, as a result of the above problems, some of his resident clients had told him they were unable to find valuers who were willing to do work for them.
Separately, Mr Pyne said the retrospective nature of the legislation had created problems, and urged the NSW Government to closely examine this issue.
“I had a very interesting matter whereby a lot of it came down to whether the lease was terminated or not, even though the residents continued to reside in the village,” Mr Pyne said.
“The lease was quite well drafted by that scheme operator. And if there hadn't been retrospective legislation, there wouldn't have been a problem.
“But the nature of the retrospective legislation really changed the whole situation.
“And because the scheme operator didn't enforce their right to take possession earlier, literally come 10 May 2019 that resident was entitled to that buyback.”
The NSW discussion paper suggests that, when a village operator and a former resident do not agree on the unit’s value, an independent valuer should be appointed, as agreed by both parties or by a body such as the Australian Property Institute.
The Queensland experience shows that ensuring there is an available supply of independent valuers will be a crucial part of such a policy measure.
The NSW discussion paper also notes that, if the reform is implemented to apply retrospectively to existing unit owners, and operators fail to become more efficient, average metropolitan village profits could fall between 12-17 per cent between 2020-2033, and regional village profits could fall by 16-25 per cent during the same period.
To this extent, NSW appears to be baulking at making the buyback reforms retrospective, and may instead apply them only to units purchased after the legislation has passed.
Mr Pyne has published a blog on his site entitled Agreeing a fair resale value for your RV unit could be harder than you think
By Mark Skelsey, News Editor at Downsizing.com.au - email Mark at [email protected]
