Retirement village residents overcharged millions for chattels

The fox has been in the hen house again at our retirement villages.

Year after year, many villages have been charging residents for the repair and replacement of chattels. A new oven can cost $1000, a plumbing bill $300 and carpets are eye-watering when you’re a pensioner.

A recent Commerce Commission investigation revealed what we’ve all suspected for a long time – that residents should not be paying these costs.

Residents have no ownership rights in the bricks and mortar, or the bath and blinds. When unit prices rise, capital gains belong to the operator. They only have a licence to occupy their home. When you put this alongside the demand to pay for chattels the commission believes there is a significant imbalance of power and a financial detriment.

To be clear, only a court can decide if these are “unfair contract terms”, which have breached the Fair Trading Act. The commission has a good sense of smell and in its view, forcing residents to pay these costs has potentially breached the law.

Will residents get their money back?

It’s a serious question and it could amount to millions of dollars of unfair charging.

An operator may have deleted these clauses a month ago, a year ago or five years ago, but thousands of residents will have been forced to pay money for chattels at some point.

Some still have ‘live’ clauses today, such as Metlifecare, which, despite having three attempts at rewriting its contract, in 2023 is still being rapped over the knuckles. It shows zero fear of the commission.

Even if many contracts are now ‘clean’ and fairness is restored, it doesn’t excuse the earlier payments. There’s potentially millions of dollars of chattels funded by today’s residents that require compensation.

What power does the Commerce Commission have?

I find its first reaction unbelievably relaxed.

Each operator was told “we do not intend to conduct further investigations at this time”. And, we are writing to “assist you with your obligations under the Fair Trading Act”. This is what regulators call “education”. By nudging the right behaviour into place without legal action, it saves time and money.

Only the commission has the power under the Fair Trading Act to make an application to a court to declare a chattels clause is unfair. We, as individuals, can’t ask the court to do this.

So that scuppers my first thought of going to the Disputes Tribunal. It’s cheap, accessible and residents could take up to six years of bills and ask for refunds. By the good grace of bad policy-making, the operators are saved from a deluge of residents reclaiming money. We need a law change.

Residents are at the mercy of the commission

So, what happens now? Will the chickens come home to roost for operators, or will they get away with years of over-charging?

If the commission applied to the court to have the chattels clause deemed unfair, breaches result in fines of $200,000 for an individual and $600,000 for a company. There’s injunctions to cease and orders directing them to refund money or pay damages.

And there’s the two words I’m looking for, “refund money”. Reading things more closely, refunds are ordered if an operator “continues to use or enforce a term”.

Well, that’s OK then, Mike and Barbara have paid five years of repairs and replaced several chattels, but because their operator will now remove the clause, everything is fair again?

It’s not right, is it?

Operators have been enforcing chattels charges for years. It’s unconscionable to tell consumers they’re not entitled to refunds because their village owner has now been “educated” about the Fair Trading Act.

With many other contract terms raised by the commission, “education” will work, because the clause hasn’t already been relied on. Other potential breaches may have caused inconvenience to residents, but no direct financial loss. Chattels is a sore point, because it’s real money being paid over a long period.

The commission should have front-footed this issue for residents and explained if it planned on taking this particular clause to court for a declaration under the Fair Trading Act. We then need a practical pathway for residents to get refunds, via the Disputes Tribunal or a negotiated settlement with operators, to avoid each resident incurring court costs.

How will operators ever be deterred, if unfair clauses have no financial consequences and they can profit for years without fear. It would make the Fair Trading Act impotent. Residents should not be taking this hit, for the benefit of shareholders.

The commission has been known to force banks and insurers to undertake time-consuming calculations and make individual refunds to customers.

Let’s hope something practical can be done for the thousands of residents who are owed money back.

Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. Readers should always seek specific independent financial advice appropriate to their own circumstances.