Private village operators in NSW are facing their biggest administrative burden – the introduction of Asset Management Plans.
AMPs only apply to registered interest holders – residents of long-term registered leases of at least 50 years who are entitled to at least 50% of any capital gain, not non-registered interest holders or residents of a strata scheme or community scheme.
Not For Profit operators do not generally share the capital gain on village homes, and traditionally have loan licence agreements, not lease licences.
The AMP is a 10-year plan which sets out how major items of capital are going to be maintained and repaired – and whether the operator or residents will foot the bill.
NSW: al items over $1,000 recorded while other states $10,000
That still means operators must have their plans ready to be inspected by residents by 1 July – just over two months away.
The AMP must detail the items of capital priced at $1,000 and above for which the operator is responsible – and the list is long.
Items of capital include any building or structure in a retirement village; any plant, equipment or machinery used in the operation of a village, any part of the infrastructure of a village, plus fittings, fixtures, furnishings and non-fixed items.
Shared items of capital, for example, a minibus shared with the co-located aged care home, must also be recorded.
Some items are excluded, such as equipment that is a consumable used in the operation of an item of capital or in the day-to-day operation of the village – but the majority of major purchases would qualify.
The operator must record the age of the item, its prospective life and the amount of money paid under the village contract – and keep the plan up-to-date.
Most states work on $10,000 threshold
Paul Burkett is the CEO and Director of Baldwin Care Group, which has eight retirement villages across NSW, QLD, Victoria and Tasmania – he is also the NSW President of the Retirement Living Council (RLC).
Speaking solely as an operator, Paul says the challenge with the AMPs is the $1,000 threshold.
Most states work on a $10,000 threshold, he says.
“No other state brings it to that low value. When you are going down to such minute detail with every item, you could have 15,000-to-17,000-line items for a village.”
While he says the Government’s position is understandable, given the level of concern by residents around responsibilities of repairs and maintenance, Paul believe the requirements around the regulations require more fine-tuning.
NSW facts to understand: items left out can’t be funded from capital works
Critically, the first plan must be presented to the residents at least 60 days before its start date so they can inspect it and provide feedback which must be recorded by the operator – including any changes to the plan in response to this feedback.
This means operators must be working on plans now in order to have them ready in the necessary timeframe.
The plan must also include an asset register of the village’s major items of capital, including information about the effective life of items of capital, and a maintenance schedule of the village’s major items of capital, including estimated cost and maintenance dates and information about capital replacement.
Importantly, if a major item of capital is not in the register, the item’s maintenance can’t be funded from the capital works funds or recurrent charges – leaving operators to pay the bill.
The register will only apply to items purchased or constructed before 1 February 2021 – but will prove to be an exercise in paperwork moving forward as new major items of capital have to be added to within seven days of their purchase.
July 2022 is now set down as the start date of penalties for operators that fail to meet their AMP requirements.
Three-year budget delivered annually
Operators must also prepare a three-year report for capital maintenance extracted from the AMP to help inform expenditure for major items in the village’s annual budget.
If this three-year budget differs from the information in the asset management plan, operators must revise the plan within 28 days of the budget being approved.
And if the total cost for capital maintenance for all of the major items listed at the start of an asset management plan is likely to increase by 25% or more (net of CPI) by the end of the 10-year period, the operator must revise their capital cost estimates.
These must then be made available to residents who will have the option to comment on the changes – effectively giving residents the opportunity to ‘sign off’ on any large budget increases.
Residents unlikely to fund plans
Rohan Harris, principal of law firm Russell Kennedy, tells us that the cost of preparing the asset management plan could be included in the village’s budget, if the residents agree.
“This is well and good in theory, but doubtful in practice because it requires the residents’ approval. Residents would need to see the benefit and be happy share the additional cost of the plan, which is essentially the operator’s responsibility.”
He also believes the impact will differ between operators.
“Well-organised operators with existing capital asset management programs in place will deal with the new requirements, and may have capacity to absorb or pass on any additional costs. Operators who have failed to meet base level capital maintenance standards that already exist will be found wanting.”
Long history of resident disputes
You have to ask the question though: did the sector bring this on itself?
The Greiner Inquiry highlighted a number of disputes between residents and operators over maintenance and repair costs in the village.
The word we hear from village residents’ associations is that operators are reluctant to commit the cash to replace expensive items – preferring instead to repair items and forcing the cost into the residents’ budget.
For example, typically a new bus would need to be purchased every seven years.
But by continually repairing the bus with new parts – long past its normal use-by date – residents pick up the bill.
Quantity surveyor to be required
Villages will now require a quantity surveyor or similar person to sign off on the plan before it can be given the stamp of approval.
“In addition, where a village has commenced its notice period on a proposed 2021/22 FY budget before the commencement of the proposed amending regulation, the operator will not be required to have its asset management plan reviewed by a qualified person for that budget cycle.”
Rohan says: “Features like the $1,000 planning threshold begs the question – would the time and effort on documenting and budgeting to that level of detail be better spent on the assets themselves?
“But overall, the asset management plan requirements are there to hold operators to greater account for what they are already required to do – that is to maintain capital items in reasonable condition, having regard to their age and money paid by the residents to the operator.”
“Operators that aren’t able to deal with this and other reforms will find doing business more and more challenging.”
All village operators beware – and prepared, including in other states.