New Jersey recently changed state law governing “refundable” entrance fee agreements used by Continuing Care Retirement Communities (CCRCs).
State law limits the amount of time that CCRCs are permitted to retain “refundable” entrance fees after a resident vacates a facility due to relocation or death. Until recently, although New Jersey law required CCRCs to repay refundable fees, the refunds were not mandated until 60 days after the unit owned by the vacating resident was resold. As a result, CCRC facilities often held refundable fees for a year or more after a particular unit was vacated, while marketing and selling other units first. In essence, the CCRC facilities preferred to sell new units or other units unencumbered by a refund obligation, to maximize their income and asset picture.
On August 17, 2018, New Jersey Governor Phil Murphy signed Public Law 2018, c.98 into law. The legislative statement accompanying the new law explained the purpose of the changes:
Under current law, a continuing care retirement community may retain an entrance fee for as long as it takes for the unit to be reoccupied by another resident. Absent a maximum refunding period, there is little incentive for the facility management to aggressively market any particular unit. In some instances, a facility has retained the fee for several years after the unit has been vacated, unreasonably delaying the return of the fee. Further, if the resident has died, an estate may be forced to pay distribution taxes on money representing the fee refund, years before the estate and beneficiaries receive that fee refund.
The new law mandates that CCRCs create a preference list for units with refund obligations. Key language in the new law provides as follows:
In the case of a continuing care agreement that provides for a refundable entrance fee, the facility shall assign the vacated unit a sequential refund number among all the available units with refundable entrance fees …. Any balance to the resident shall be payable based upon the order of the sequential refund number assigned to [the] unit ….
Instead of the preference list mandated by the new law, a CCRC facility is also permitted to apply to the New Jersey regulatory body for CCRCs for permission to use an alternative methodology for making refunds, but provides that “approval shall not be granted unless the facility can demonstrate that the use of the alternative methodology is resident-focused and provides for a more equitable and timely payment of refundable fees.”
The effective date of the new law is 90 days from date of enactment. The new rule for refunds applies only to CCRC agreements entered into on or after the effective date of the new law.
Attached is the new law governing refunds due from CCRCs –
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