The operator of a retirement village must establish two compulsory funds:
- a capital replacement fund for replacing the village´s capital items
- a maintenance reserve fund for maintaining and repairing the village´s capital items.
Capital replacement fund
Use a capital replacement fund to replace the village´s capital items, pay quantity surveying fees or pay tax on fund amounts.
It is an offence to use money in the fund for any other purpose, including crediting other funds.
You cannot use the fund for capital improvement or to replace body corporate property.
Setting up the fund
Open a separate account that needs your signature for any withdrawals. The fund´s name should include your name, the retirement village´s name and the words ´secured capital replacement fund account´.
Creating a statutory charge
Once you establish the fund, a statutory charge is created over it.
The charge ensures the fund is protected and available. It has priority over any other charge over the fund.
The statutory charge continues until the village no longer operates and all former residents receive their exit entitlements.
Choosing a capital replacement reserve
The reserve is the minimum amount that must be available in the capital replacement fund to replace current and future capital items.
To do this, ask an independent quantity surveyor for a report on the village´s expected capital replacement over the next 10 years. You need to get these reports every three years.
If the amount in a capital replacement fund is less than the reserve, determine the amount to pay into the fund to reach the reserve.
Managing a capital replacement reserve
You must prepare a budget for the capital replacement fund each financial year.
The budget must raise enough funds for current needs, and for future capital reserves.
If requested, give the residents´ committee a copy of the budget at least 14 days before the financial year begins.
The committee must request this in writing at least 28 days before the financial year begins.
A resident must pay for deliberate damage they cause to a capital item or accelerated wear and tear.
Making payments into the fund
Make the following payments in the capital replacement fund:
- the capital replacement fund contribution
- for contracts that commenced prior to 1 July 2000, the percentage of a resident´s services charge that goes towards capital replacement (as outlined in their contract)
- insurance money if capital items are destroyed
- interest from fund amounts.
You can invest money from the fund only in an authorised investment under the Trusts Act 1973.
Maintenance reserve fund
Residents solely contribute to the maintenance reserve fund as part of their general service charges.
Use the maintenance reserve fund to maintain and repair the village´s capital items, pay quantity surveying fees or pay tax on fund amounts.
You cannot use the fund for day-to-day maintenance of the village, capital improvement or replacement, or body corporate property.
Setting up the fund
Open a separate trust account that needs your signature for any withdrawals.
Regardless of any change in operator, the fund holds all money in trust until the village no longer operates and all former residents receive their exit entitlements.
Choosing a maintenance reserve
The maintenance reserve is the minimum amount that must be available in the maintenance reserve fund.
To determine the maintenance reserve, ask an independent quantity surveyor for a report on the village´s expected maintenance and repair costs for the next 10 years. You need to get these reports every three years.
If the amount in a maintenance reserve fund is less than the reserve, you need to increase the residents´ fund contribution to reach the reserve.
If you must spend more on maintenance or repairs than the amount in the fund, you must pay the difference. This is an interest-free loan from the operator to the fund.
Managing a maintenance reserve fund
Prepare a budget for the maintenance reserve fund each financial year.
The budget must raise enough funds for necessary and reasonable spending, and for future expenses.
Carry forward any surplus or deficit at the end of the year and account for the amount when preparing the following year´s budget.
If requested, give the residents´ committee a copy of the budget at least 14 days before the financial year begins.
The committee must request this in writing at least 28 days before the financial year begins.
Making payments into the fund
Pay all the residents´ maintenance reserve funds, and any interest on fund amounts, into the maintenance reserve fund.
You may invest money from the fund only in an authorised investment under the Trusts Act 1973.
