An investor's guide to the sector and its regulations.
David McElhone is a real estate lawyer with more than 25 years’ experience in a wide range of property developments, transactions and investment structuring across diverse asset types.
His practice encompasses commercial, residential, retail, industrial and university developments and related property transactions, complex strata and community schemes, aged care and retirement villages, hotels and tourism as well as leasing.
David has extensive experience in tax and stamp duty effective structures, real estate investment trusts, foreign investment, joint ventures and other contractual and financing arrangements.
Some long-standing clients include American Express, ANZ, Australand, Singapore Government Investment Corporation, Lend Lease, Macquarie Group, and Westpac.
David has been consistently recognised for his leading real estate expertise in numerous independent legal guides.
A regular speaker at industry conferences, David is a member of and is on or has been on advisory committees of the Property Council of Australia, the Retirement Villages Association, the Property Industry Foundation, and the Urban Development Institute of Australia.
The Full Federal Court handed down its appeal decision in MBI Properties Pty Limited v Commissioner of Taxation  FCAFC 112 on 18 October 2013, regarding the GST consequences arising from the sale of leased residential property as a going concern.
The New South Wales Government released today a regulation which prescribes the use of a standard form of retirement village contract, a general inquiry document and a revised disclosure statement. Use of these new documents is mandatory from 1 October 2013.
Important amendments have been made to the Retirement Villages Act 1986 (VIC) introducing stringent disclosure requirements on owners and operators of retirement villages in Victoria. The amendments enable prospective residents to better compare retirement villages before signing a contract.
The Retirement Villages Act 2012 (ACT) commenced on 4 March 2013, and while there was some question as to whether they would be ready on time, the Retirement Villages Regulations 2013 became available on the same day and are now also in effect.
The Act replaces the Fair Trading (Retirement Village Industry) Code of Practice 1999 and sets out the rights and obligations of residents and operators of retirement villages. It will apply to all prospective and current retirement village residents and operators in the ACT, but does not apply to 'aged care facilities' which are regulated by the Commonwealth Aged Care Act 1997.
The Retirement Villages Amendment Bill 2012 (Bill) was passed by the Western Australian Parliament on 23 October 2012 and is awaiting assent.
Operators of retirement villages in Victoria should be aware that the Australian Consumer Law and Fair Trading Act 2012 (Vic) (ACLFTA) commenced on 1 July 2012. The ACLFTA repeals the Fair Trading Act 1999 (Vic) and re-enacts its provisions in a restructured and consolidated form. There are also some new provisions, such as increased capacity for disputes involving small businesses to be referred for conciliation or mediation by the Director of Consumer Affairs Victoria.
Minter Ellison advised Lloyds International Pty Limited, whose subsidiaries BOS International (Australia) Limited and Capital Finance Australia Limited have entered into an agreement to sell a portfolio of Australian corporate real estate loans to AET SPV Management Pty Ltd (as trustee of the Lawson Trust) for approximately A$620 million. The purchaser is a joint venture of funds sponsored by Morgan Stanley Real Estate Investing and Blackstone Real Estate Partners.
In May 2011, the Administrative Appeals Tribunal (AAT) decided in Re The Retirement Village Company and FCT  AATA 298, that a retirement village operator could claim a tax deduction for exit payments (which included a 'capital appreciation sharing payment') made under resident contracts (and which had been acquired as part of the acquisition of the retirement village). The Australian Taxation Office (ATO) has now issued a Decision Impact Statement on the AAT decision, which broadly seeks to limit the application of the AAT decision to the particular facts. Given the ATO does not appear to accept that the AAT decision has precedential value, we recommend the ATO seek a test case to provide the retirement village sector with some certainty on these important tax and commercial issues.
The Australian Taxation Office (ATO) has recently issued a draft public ruling GSTR 2012/D2 (Draft Ruling) in relation to the GST treatment of retirement village exit fees. The Draft Ruling will affect both charitable and commercial operators of loan-lease retirement villages.
The Australian Taxation Office has withdrawn its Federal Court appeal of the AAT decision in Re The Retirement Village Company and FCT.
The Supreme Court of New South Wales recently held that certain clauses in services deeds between a manager and residents of a retirement village (under which residents gave the manager an exclusive sole agency and right of sale of residents' lot) were void because they were inconsistent with provisions of the Retirement Villages Act 1999 (NSW) (Act). This meant that on a proper construction of the services deeds the manager could not enforce a clause entitling it to a 'management profit' upon sale of the lots.
A recent decision of the AAT casts real doubt on the Australian Taxation Office's current practice of:
If upheld, this decision could result in cost savings for retirement village owners and operators and improved returns to investors. Retirement village operators may wish to consider what actions are appropriate in the interim to preserve their tax position.
The Australian Taxation Office has at last finalised its GST public ruling on retirement villages (GSTR 2011/1). The ruling maintains the position that taxable sales of retirement villages must include GST based on the value of resident loans. In a second 'hit' to developers, it also requires them to reduce their input tax credit claims by allowing for a 'deemed' interest component in the calculation of their input tax credit recovery ratios.
Operators who develop and then manage strata titled retirement villages in New South Wales will be impacted significantly by the Strata Legislation Amendment Bill 2010 (Bill), if enacted in its current form. The Bill will prevent the original developer, and certain persons connected with the original developer, from being appointed as caretaker or strata managing agent for a strata scheme.