Retirement villages and recreational facilities – key legal considerations when developing the perfect ‘match’
Australia’s ageing population has driven innovation in delivering housing solutions for retirees and elderly alike. As a nation of sports fanatics who also love nature and green open spaces, it is no surprise that there has been a steadily increasing trend to co-locate retirement living with recreational facilities such as golf courses, bowls clubs and other recreational clubs.
HopgoodGanim has been fortunate enough to have acted for a number of retirement village operators (scheme operators) and clubs with respect to co-location projects in Queensland.
Just like any good project, these types of projects come with their fair share of intricacies and complications. We outline below some key legal considerations for scheme operators and clubs alike when negotiating co-location projects.
The type of tenure sought by the scheme operator (freehold v long-term leasehold tenure) has a strong influence on the commercials of a deal. Freehold tenure involves the club transferring (or selling) a parcel of land to the scheme operator, whilst leasehold tenure involves the club granting a long-term lease (sometimes in excess of 99 years) to the scheme operator.
Before agreeing to a particular tenure outcome, clubs should consider their constituent documents and ability to either sell parts of or grant long-term leases over the club land. Scheme operators should consider whether the risks associated with long-term leasehold tenure (i.e. a lower level of control, ability to lose tenure) are adequately outweighed by any commercial up-side in developing and operating a retirement village at the site.
Funding and town planning requirements may also play a role in considering the appropriate tenure for the project.
For leasehold tenure, the parties enter into a lease over the village land, otherwise known as a village lease. In addition to the usual lease provisions (e.g. term, rent (if any), maintenance obligations), the sharing of risk between the scheme operator and club should be addressed. Scheme operators will naturally want controls around amenity in and around the village land, whilst clubs will want to ensure continuity of operations and member access.
Other relevant considerations include controls around building appearance, shared access, guaranteed amenity in the immediate surrounding area and preservation of club activities.
Unless the site upon which the retirement village is to be located is comprised in the whole of one or more lots, there is likely going to be a need to reconfigure the land. Understanding when and how the club’s land needs to be reconfigured is important to ensuring that the deal is documented appropriately.
Where freehold tenure is chosen, a plan of subdivision will need to be lodged prior to the parcel of land being transferred to the scheme operator.
Where leasehold tenure is chosen, it can be more complicated. In particular, the grant of a lease of part of a lot for a term of 10 years or greater is deemed to be reconfiguration of land for the purposes of the Planning Act 2016 (Qld) (Planning Act), for which a development approval is required. Accordingly, where the village lease is granted over part of a lot, a development approval for a reconfiguration of a lot will be required.
Alternatively, it may be possible to reconfigure the freehold parcels to a configuration that would see the scheme operator take a long-term lease granted over the whole of a newly created lot. From a lease documentation perspective, the benefit of this approach is that it results in a simpler long-term lease.
In either case, the parties should ensure that the appropriate development approvals are obtained and that the transaction documents adequately cater for any reconfiguration requirements.
A reconfiguration of land approval (ROL approval) may require works to be completed prior to the relevant reconfiguration being undertaken and signed off by Council (ROL works). Where ROL works are required, the parties should consider:
Care should be taken to ensure that transaction documents are structured to adequately address the above issues without breaching the Planning Act but also meeting the requirements of an operator’s financier (see further below).
Some deals involve the payment of a lease premium in exchange for the long-term lease. Some deals may call for a lease premium to be paid up front, whilst others call for a lease premium to be paid in stages. Regardless of when a lease premium is payable, it is important to note that generally, the payment of a lease premium will make the lease dutiable. On the flip side, the payment of a lease premium may provide clubs with the financial support needed to ensure they are an ongoing success.
Rather than a lease premium, the commercial terms of a particular deal may require the scheme operator to build club facilities for the club in exchange for the relevant tenure. Whilst this is simple in principle, it does pose the ‘chicken or egg’ type scenario. Is the club willing to provide tenure without receiving its building? If tenure is to be provided after the building is complete, then what happens if scheme operator completes say 60% of the building, but the club breaches a key term of the transaction documents or suffers an insolvency event? In those circumstances, the scheme operator will have spent considerable funds, without receiving the tenure it was promised. These issues become even more protracted in the case of the staged development of the village or the staged granting of village tenure.
The transaction documents should be drafted to cover off on the above risks, especially in the current economic climate and recent challenges experienced by clubs. A range of appropriate termination outcomes should be catered for.
Easements and other dealings may be required in connection with the development (e.g. right of way easements, utility easements etc.).
The transaction document should deal with the grant of any easements or other interests, keeping in mind that easements may also be required in favour of public authorities. If the club has granted a mortgage over the land, the consent of the mortgagee may be required.
The parties should also consider what types of other easements will be required prior to the retirement village use starting (e.g. easements required as conditions of a development approval) and ensure that the transaction documents have sufficient flexibility to ensure that these easements can be put in place.
Just like other projects, a financier is likely to be involved. Where an operator is acquiring a freehold interest in the relevant lot, then the financier’s involvement should be relatively straightforward and predictable.
Where an operator is being granted a leasehold interest in the site, funding requirements can become more complex. In particular:
The transaction documents need to be structured to ensure that the above risks are addressed and catered for in terms of the deal sequence and conditions precedent.
The operation of retirement villages in Queensland is regulated under the Retirement Village Act 1999 (Qld) (RV Act). The RV Act contains various rights and responsibilities for residents and scheme operators and is administered by Department of Housing and Public Works (DHPW).
The DHPW is also responsible for assessing and registering retirement villages in Queensland. It should be no surprise that the DHPW will take into account the arrangements between scheme operators and clubs when assessing retirement villages for registration.
In particular, for leasehold tenure, continuity of residents’ tenure following the expiry of the village lease and responsibility for exit entitlements are often items which need to be addressed in arrangements with clubs. The legal formalities contained in section 55 of the Property Law Act 1974 (Qld) should be adequately catered for and drafted in any transaction documents in order for continuity of residents’ tenure to be enforceable by residents.
Finally, consideration should be given to when an application for retirement village registration may be lodged and what happens if DHPW require amendments to the relevant village lease or arrangements between the scheme operator and club.
The transaction documents should cater for a variety of appropriate outcomes in this respect.
In leasehold deals, resident’s contracts will need to contain additional provisions to cater for the requirements of the relevant village lease (i.e. acknowledgements in relation to the continuity of club operations etc.) and to address legal formalities in the Property Law Act 1974 (Qld) in relation to ensuring the village lease is also expressed to be for the benefit of residents.
One of the key risks for any party entering into commercial arrangements with another party is what happens if the other party suffers an insolvency event. In leasehold deals, a club’s insolvency or liquidation may result in the village lease being disclaimed. This in itself would be disastrous to the continuity of the village, resident’s tenure and the scheme operator’s rights with respect to the land. There are a number of ways in which the risk may be minimised – e.g. rigour around when a club may take on debt or grant mortgages, as well as additional title dealings in favour of the scheme operator that disincentives liquidators from disclaiming a lease.
The nature of payments/works being undertaken for the club has a flow on effect on the stamp duty liability, GST and CGT payable with respect to the transaction. For example, the value of any improvements made by the scheme operator may form non-monetary consideration for the purposes of GST. An upfront lease premium may be subject to transfer duty. How this interplays with a club’s tax exempt status and any entitlement to transfer duty relief should be considered carefully in conjunction with the parties’ respective tax advisors.
The above serves as a brief overview of the types of issues that are encountered when documenting, negotiating and finalising co-location deals. Like any complex deal, there will no doubt be additional issues uncovered in the course of negotiations and due diligence.
HopgoodGanim has been fortunate to have acted for a number of clubs and scheme operators in relation to the development of retirement villages on recreation space. Should you have any queries or would like to discuss a project further, please do not hesitate to contact Ivan Orola, Amye McArthur or our Property team.