While protocols are not legally binding, there is an expectation that they will be applied.
Protocol
It is good practice:
- for the financial statement required under section 34(3) of the Act to be as simple as possible. Even if your village is exempt from the requirement to provide a financial statement, it is still good practice to do so.
- to give residents sufficient time to consider and discuss the statement with other residents. It is good practice to provide it to them no later than 14 days before the meeting. Consider releasing a preliminary ‘discussion’ draft at an earlier stage.
- to invite residents to discuss issues with you before the meeting.
- for the statement to clearly state the rationale for how expenditure items are allocated.
- to provide sufficient detail of expenditure items to enable residents to assess each one (for example, whether the item is necessary and appropriate, and whether there are alternatives). It should not disclose the salary/wages of identifiable individuals.
- for the statement to show all proposed categories of expenditure (without grouping unlike categories).
- for the statement to show how an item has been apportioned, if an expenditure item represents an apportionment between various villages or businesses.
- if any residents are paying significantly higher charges than other residents, for the statement to state how expenditure is apportioned between the categories of residents.
- for expenditure items associated with head office or management/administration fees to be broken down to show the goods and services they relate to and their approximate cost.
Issues
- Adequacy of time for residents to examine the statement before the meeting.
- Confusion and lack of understanding of the financial statement.
- How expenditure is divided when people are paying different amounts.
- Level of detail of expenditure items in the statement.
- Opportunity for residents to clarify issues before the meeting.
Rationale
Annual general meetings should be transparent and provide information that is easy to understand.
Some residents are not familiar with financial concepts and terminology and they can find it difficult to read financial statements. This can lead to confusion and distress.
There can sometimes be confusion about what should be included in the financial statement. The Retirement Villages Act 1986 (the Act) only requires a statement of income and expenditure relating to village charges, and statements of ingoing contribution refunds and expected solvency. However, some residents may feel the statement should reflect all financial activity for the year.
Disputes can arise if a financial statement is difficult or confusing to read, has too much or too little detail or if residents’ queries are not handled appropriately.
The Act allows for flexibility in retirement village business models and relies on the adoption of good practices by village managers. This can avoid the need for more prescriptive regulation of financial issues, as occurs in other states.
This protocol supports greater transparency and understanding of annual financial statements and aims to reduce disputes arising from misunderstandings and a lack of notice, transparency and communication regarding annual general meetings.
Applicable law
Unless your retirement village is a not-for-profit that has obtained an official exemption from the need to comply, section 34(3) of the Act requires you, as manager, to present a financial statement to the annual general meeting, setting out:
- income received from village charges
- expenditure on goods and services for the village
- what provision (if any) has been made for future extraordinary or major works
- anticipated expenditure on goods and services
- any proposed increase in maintenance charges
- proposed special levies.
The Act does not require you to present a complete financial statement of the village; only a statement of income and expenditure relating to village charges.
This protocol does not relate to section 34(1) of the Act, which requires you to present a statement detailing:
- whether all refundable ingoing contributions have been refunded
- if you are aware of anything that would prevent the village from paying its debts on time.