After years of discussion, arguments and tribunal hearings, the question of who owns our residential air conditioners (ACs) is well and truly settled, isn’t it?
- Residents own their air conditioners.
- Residents arrange their own AC maintenance and service, and pay for it individually.
- Residents pay to replace their ACs when that becomes necessary.
That is the way it is, and the way it will stay if residents accept that it is the way things should be. But is this the way it should be? It is not the way that most retirement villages work.
The basic question is whether our ACs are appropriately classified as our property, or whether they should be capital items, the property of the operator. If the latter were the case, the following would apply.
- The operator would own the ACs.
- Residents would share service and repair costs through recurrent charges.
- The operator would pay to replace ACs when that became necessary.
The earliest village contracts did not specify ownership of residential ACs, and the operator sought to convince residents that it was in their own interests to accept ownership. The main argument put forward by the operator was that:
If the operator became responsible for maintenance and service (funded by residents through recurrent charges), then recurrent charges would increase by about $80 per residence per month, (or about $1,000 annually) because the operator would have to take out an insurance policy for that purpose.
Residents realised that they would never be likely to spend that much money in maintaining their own ACs, and many came to believe that ownership of their own ACs was in their best interests. Responsibility for replacement costs was not discussed at any length. At that point all ACs were nearly new, so replacement may have seemed like something the next owner of the residence would have to worry about. Thus it was that a small number of early residents made a decision and accepted a situation that has become binding on all subsequent residents.
The operator’s argument was seriously flawed. There would have been no need for an insurance policy to cover AC service and repair. As in other villages, AC maintenance would have been just another line item in the village budget.
Rather than costing residents more, there would be economies and a higher standard of maintenance resulting from having a single company servicing all ACs in the village. “Cowboy” operators would be eliminated, and the contracted service company would usually attend the village to look at more than one AC unit, providing operating efficiencies.
Should this question have been resolved by these kinds of arguments? Are there not rules that determine whether something is a capital item or not?
A small number of residents of this village took claims to the Consumer, Trader and Tenancy Tribunal (the forerunner of NCAT) in the early life of the village. One of the issues they raised was relevant to this discussion. In his finding, dated 12 March 2012, the Senior Member found that:
I am satisfied by reference to the lease documents in each case and the provisions of s 92 that that air conditioning systems provided to the residences are capital items for which the operator must accept maintenance responsibility.
Section 92 (2) prohibits an operator of a retirement village from funding any costs of depreciation or capital replacement from recurrent charges paid by residents.
The ACs of the claimants became capital items, that situation lasting presumably until those residences changed hands. The judgement applied only to those residents who made the claim.
In an era when the scales of justice were not tilted significantly in favour of a party who could afford legal representation, the issue as defined by the above decision seemed quite clear.
What does the Act say?
The NSW Retirement Villages Act Section 101 (Operator not to sell items of capital to residents) refers.
101 (1) states: The operator of a retirement village must not sell any item of capital for which the operator is responsible, or pass responsibility for any such item of capital (whether directly or indirectly), to a resident or prospective resident of the retirement village under a village contract or otherwise except as provided by the regulations.
101 (2) states: Any contract, agreement or scheme is unenforceable to the extent that it purports to sell or pass responsibility for the replacement of items of capital in contravention of subsection (1).
(Subsection 101 (3) might be considered to be confusing to this argument, but has been interpreted as applying to strata title sales, rather than to our lease agreements, which makes it irrelevant.)
Some of the following statements have been shared previously, but for the sake of completeness they are included again.
A NSW solicitor, prominent in this field, gave the following opinion in relation to this specific village; there is no way that an air conditioner, for which the resident did not select the make or model, nor select where it would be installed, can be anything other than a capital item, the responsibility of the operator.
This opinion was endorsed unequivocally on two separate occasions, by people who at those different times were senior RVRA officers (president and vice-president respectively).
Katherine Greiner, when she was the NSW Retirement Villages Ambassador, made the following statement: When you move into a new retirement village residence, anything that is already there is a capital item. Anything that you bring with you, or subsequently purchase, is your property.
On the topic of Living in a Retirement village, there is a NSW Fair Trading document titled Replacements, repairs, maintenance and alterations. This document includes air conditioners in a list of items which, in most cases, belong to the operator and are capital items. This particular list might be interpreted as being relevant only to equipment in areas of general use, rather than in residences. More clearly defined, however, is what residents are responsible for. You are responsible for repairs or replacement of your personal items, such as fridges and microwaves, or air conditioning units you have installed yourself. There are very few ACs in this village which fall into that category. Most were here when we arrived, part of the packages we signed up for. They cannot be described as ‘air conditioning units you have installed yourself’.
[Interestingly, on a related subject, included in the list of capital items for which the operator is responsible are fixtures (eg built-in cupboards, stoves, hot water systems and floor coverings). Some of the earlier residents were told that floor coverings would be replaced by the operator at appropriate intervals, and certainly when a residence changed hands, as part of a refurbishment by the operator. That assurance was withdrawn by the operator early in the life of the village.]
While the issue of responsibility for the cost of AC replacement might not have been significant to early residents of this village, the situation is different now. Given that an AC might reasonably be expected to last 15 to 20 years if properly installed (which is not the case for many villa units in this village, which are installed in confined spaces, contrary to established good industry practice), the earliest ACs in the village, at the time of writing, have just passed the 15 years mark. Quite a few ACs have already required replacement. Residents might see things differently now than they did in those early years. Replacement might not be so far in the future. For many it is an imminent expense.
In round figures, if we assume a final total of 800 residences, a unit replacement cost around $7,000, and an average AC life of 18 years, the total village replacement cost, once a pattern develops, will be somewhere around $300,000 annually at current values. That might offer a temptation to an operator to shift replacement cost responsibility on to the residents.
In summary:
- Informed legal opinion is that our air conditioners are by law capital items, the property and responsibility of the operator.
- The arguments that were used to convince most early residents that they should own their air conditioners were flawed. The issue of financial responsibility for replacement was downplayed.
- The present arrangement favours the operator by removing from the operator the financial responsibility for replacement of air conditioners when that becomes necessary, and unfairly placing that responsibility on the residents.
- The actions of the operator are arguably in contravention of the NSW Retirement Villages Act, and are not consistent with the practices of most retirement villages.