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Retirement villages - discussion paper [2000] NZSecCom 3 (23 May 2000)

Last Updated: 4 November 2014

Retirement Villages - Discussion Paper

23 May 2000

The Commission has been considering the manner in which the Securities Act 1978 ("the Act") applies to offers to the public of interests in resident funded retirement village schemes.

At the present time interests in retirement villages are offered:

1. by way of a contractual licence to occupy, in a registered prospectus and investment statement and with the appointment of a trustee or statutory supervisor, as provided for in Part II of the Act. The scheme manager using this statutory framework can take the benefit of the exemption granted by the Securities Commission under the Securities Act (Retirement Villages) Exemption Notice 1999; or
2. by way of a title deed and/or a mortgage, in offer documents which may be exempted from securities law.

The Law Commission has estimated in its Report 57, issued in September 1999, that 57% of villages operate under a contractual licence. The developers of this type of scheme will own the units and the community facilities. They will license the occupation of units to residents and will normally retain management of the scheme and the community facilities. These will be subject to securities law. Developers of title-based schemes will confer on residents a unit title, a cross-lease, or a lease for life registrable under the Land Transfer Act 1952. The manner in which securities law applies to these schemes is not always clear. The matter was considered by the Privy Council in the Culverden case. In general such schemes are also subject to securities law, although it is not always clear whether they are subject to the core compliance provisions in Part II of the Act.

During the course of our review we have conferred with Ryman Healthcare Limited. Ryman has co-operated fully with this review and has provided information relating to the questions at issue. We have analysed this information carefully. Ryman accepts that it is offering securities for the purposes of the Act. However it considers that it is exempted from the core compliance provisions in Part II as it considers its offers fall within section 5(1)(b) (interests in land for which a separate certificate of title can be issued) and section 5(1)(f) (mortgages of land). Ryman has legal opinions in support of this view.

We obtained independent legal advice on the matter. The advice we received was that there was no certainty as to the position but that Part II of the Act may apply.

We accept that there is uncertainty about the application of securities law to some retirement village schemes. This is unfortunate. We think it preferable that all retirement village schemes be subject to the same single set of rules. This is the view of the Law Commission which has recommended in its Report 57 that the Government enact new rules of law on the subject. It is also a common view within the industry, including in particular the New Zealand Retirement Villages Association and its members.

For the purposes of clarifying the law on the matter we have considered whether it would be appropriate to institute proceedings before the High Court. This would have been by way of case stated on the question whether Part II of the Act applies to the Ryman offers of securities. However, we do not believe that action is justified. Ryman has taken extensive legal advice on the matter and the Government has already in the past committed resources to litigation on the manner in which the law applies to offers of interests in retirement village schemes, in the Culverden case.

We take no position on the recommendations of the Law Commission. To a significant extent they lie outside the purview of securities law. They cover both the marketing of schemes and their ongoing supervision and administration. However it is very timely for the Government to consider these recommendations and to decide whether steps need to be taken to enact uniform rules of law about the offer to the public of interests in retirement village schemes.

We acknowledge that a final decision on a review of the law will be some time away. Consequently we are considering possible "interim" proposals for dealing with the concerns of the community as they relate to securities regulation.

Currently under section 2D(1) of the Act "any interest or right that is declared by regulation to be a security..." is a security and "any interest or right declared by regulation not to be a security..." is not a security. This power of regulation enables the Government to give greater clarity to the law and greater certainty in marginal cases.

We propose that consideration should be given to a provision in the law whereby certain contracts which are securities but which are exempted from compliance with Part II of the Act by virtue of section 5(1) may be made subject to Part II by regulation.

The purpose of section 5(1) is to exempt certain securities contracts from the compliance provisions of Part II of the Act where the benefit of securities law seems unnecessary. We consider that section 5(1) cannot be amended to provide the same level of certainty or clarity as our present proposal, not at least with the ease and speed which a regulation making power can afford.

We think there are certain types of contracts for securities that would benefit from the application of Part II of the Act. A particular example is an offer of securities in a retirement village scheme where the issuer relies on the exemptions in section 5(1)(b) and section 5(1)(f) to avoid the requirement for the prospectus, investment statement and trustee/statutory supervisor.

Any action under the proposed new power would, we suggest, be preceded by public consultation, which would enable the Government to take an informed decision on any proposal to regulate. Moreover, it would afford us the opportunity to consider the type and extent of disclosure to be required of all retirement village schemes, and whether to review the current class notice for retirement villages to ensure that all terms and conditions of exemption remained appropriate.

We consider the following characteristics of investment in retirement village schemes mentioned by the Law Commission in its Report 57 reinforce the case for such a new regulation making power:

• the age and vulnerability of many potential investors/residents,
• complexity of contracts,
• difficulty in assessing the risks involved.

We invite comments on the proposal. Comments must reach the Commission by no later than 12 July 2000.

Contact person:
Ms Catherine Chapman (e-mail: catherine.chapman@seccom.govt.nz)
Securities Commission
P O Box 1179
WELLINGTON
Tel: (04) 471 7659 Fax: (04) 472 8076