Focus, Government, and Health Care

New state law regulates retirement communities

Offers of ‘life interests’ and long-term leases are under scrutiny.

April 3, 2015
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A new state law went into effect last week to address the changing environment in the retirement community industry in terms of life leases or continuing care agreements.

The Continuing Care Community Disclosure Act, Public Act 448 of 2014, went into effect April 2 and is intended to regulate the offer and sale of life interests and long-term leases in retirement communities while prohibiting fraudulent practices and enabling state government agencies’ authority to prescribe penalties and civil sanctions.

Introduced to the Michigan Legislature March 20, 2014, by Sen. John Moolenaar as Senate Bill No. 886, the new act was approved by Gov. Rick Snyder Dec. 31 and was filed with the Secretary of State Jan. 2 of this year. The bill was also sponsored by senators Dave Hildenbrand, Tonya Schuitmaker, Vincent Gregory, Rebekah Warren, Mike Nofs, James Marleau, Roger Kahn, Arlan Meekhof and Michael Kowall.

The Continuing Care Community Disclosure Act regulates retirement communities such as independent living units, nursing homes, homes for the aged, adult foster care facilities, home care service agencies, hospices and organizations providing care for a certain period of time.

The Act focuses on the offer and sale of life interests or long-term leases as a way to reduce fraudulent practices and provide for the powers and duties for certain state governmental agencies to prescribe for certain penalties and remedies, according to the Michigan Legislature.

LeadingAge Michigan, a state trade association, indicated in a March 27, 2014, written testimony to the Senate Appropriations Subcommittee on Community Health, the senate bills comprising the new Continuing Care Community Disclosure Act “more accurately reflect today’s business practices that have emerged.” The Act classifies laws that were previously vague and eliminates outdated rules no longer serving “the interests of today’s active retirees.”

Currently, there are 26 registered CCRCs throughout the state serving nearly 8,000 individuals on a daily basis, according to the testimony.

David Tiesenga, chief financial officer at Holland Home and board member of LeadingAge Michigan, said the way the new act is written still provides protection to seniors while updating definitions of the lease process.

“Back in 1976 when the original act was put in place, the entrance fee industry was really unregulated. There were a lot of developers wanting to provide senior living communities, so they took deposits from potential residents to use to build these communities,” said Tiesenga. “A lot of those developers, for one reason or another, didn’t end up finishing the buildings and people ended up losing money.”

Although the 1976 act was designed to oversee developers’ and providers’ compliance with regulations and deter taking advantage of seniors, Tiesenga said the industry has evolved over time to adapt to demand for more independent living space and care services.

“The industry has been developing what we call ‘independent living units.’ In Holland Home these range from a 600-square-foot apartment to a home that is more than 3,000 square feet,” said Tiesenga. “We don’t sell those as real estate to residents; what we do is we have them pay an entrance fee and provide them a continuing care agreement. The industry calls them ‘life leases’ or ‘long-term leases.’”

Tiesenga said the new law, in essence, updated the language to be more consistent with how the industry operates.

“These entrance fees will have parts that are refundable and parts that are not refundable. The old Act didn’t even refer to the refundable portions; it just talked about the entrance fee. Now both components have been well defined,” said Tiesenga. “This modernization of the Act now includes provisions for those continuing care facilities that have continuing care at home programs.”

Continuing care communities will still be required to register and file an annual renewal of updated financial information and significant changes to financial conditions, and will be required to give interested seniors a disclosure statement prior to investing in a life lease or continuing care agreement.

Although there may not be significant changes for seniors as the law goes into effect, Tiesenga said it is helpful as a financial advisor or an attorney providing estate planning or guidance to know there is a law in place regulating what the industry can do.

“One of the required pieces of information that we put in the disclosure statement is the purchase of a life lease or a continuing care agreement is an investment that may involve major financial commitment, and you should seek advice from an attorney or other financial advisors who are independent of the retirement community,” said Tiesenga. “I think what it does is a way to alert people there is a commitment … just like the facility has a financial responsibility under the agreement to comply with it.”

Work on the Enrolled Senate Bill No. 886 began in 2006 when LeadingAge Michigan contacted people across the state to participate in a taskforce to review how the original act was written, according to Tiesenga. Although activity stalled after a year and a half, the Living Care Disclosure taskforce was revitalized in 2011 with support from the Securities Division of the Office of Financial and Insurance Regulation with the State of Michigan.

When the state agency moved to the Michigan Department of Licensing and Regulatory Affairs, the taskforce continued to work with LeadingAge and led to Moolenaar agreeing to sponsor the new bill, according to Tiesenga.

“I was one of the few members who had participated on the committee throughout the process, from day one all the way to the end, and it was important for Holland Home,” said Tiesenga. “We probably have 18 percent of all the registered units under the current law and the new law that were out there, so it was important to us because it is a big volume of what we do.”

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