Media reports emerged yesterday that the Commerce Commission has begun an investigation into the retirement village sector. 

While the Commission has not confirmed the scope of the investigation, media reports suggest that it will focus on potential breaches of the Fair Trading Act 1986 (FTA) relating to (1) misleading advertising, particularly in relation to representations made regarding continuum of care, and/or (2) unfair contract terms contained in village occupation right agreements (ORAs). Both issues have reportedly been the subject of previous complaints and concerns raised by Consumer NZ, the Retirement Commission and the Retirement Village Residents Association of NZ.

The investigation comes at a time of heightened focus on the sector given the full review of the legislative regime currently underway, led by the Ministry of Housing and Urban Development. The legislative review has a wide scope but will consider (at a broad level) whether there are adequate consumer protections for residents and intending residents, and whether rights and responsibilities of retirement village operators and residents are appropriately defined and balanced. The review is in its initial stages, with a discussion document expected to be released in September prior to the general election.

The Retirement Villages Association (RVA), which represents operators, developers and managers of retirement villages across New Zealand, has taken a number of steps and initiatives over recent times to address consumer protection issues raised. This includes commitments by its members to remove or amend certain problematic terms in ORAs. Those commitments are currently voluntary and being trialled, though we understand have already been adopted by a large number of members. If voted through at the RVA’s annual meeting in August, the commitments will become mandatory for all members (subject to limited exceptions).

Where to from here? 

We expect the Commission will shortly start contacting industry participants (if it has not done so already) to seek information and documents, including potentially requesting interviews, as part of its investigation. Commission requests are usually voluntary in the first instance, although it also has compulsory information gathering powers. The process from there will depend on the scope and purpose of the investigation, which has not yet been confirmed by the Commission.

We expect most retirement village operators will already have undertaken a close review of their ORA terms and advertising practices, given these are not new issues being raised. However, the Commission’s investigation provides further impetus for operators to review and confirm that their ORA terms are not unfair and that any representations they are making comply with the FTA. The FTA contains a number of prohibitions on unfair conduct including misleading and deceptive conduct, unsubstantiated representations and the making of false representations relating to particular topics. The FTA also prohibits the inclusion of terms that have been declared unfair in standard form consumer contracts.

Given the timing, it is possible that the outcome of the Commission’s investigation could inform the broader legislative review.

We will continue to provide updates on both the Commerce Commission investigation and the legislative review as they progress and as information is made publicly available.

This article was co-authored by Tom Kennedy, a solicitor in our Corporate team.