Entrance Fee Bills Jeopardize CCRC Balance Sheets

The clock is ticking on a bill sitting on Governor Edmund Gerald “Jerry” Brown’s desk with an Oct. 11 deadline, which would increase regulations for continuing care retirement community entrance fee repayments. Providers are warily watching what will happen in Sacramento, as many believe that legislative changes such as this one could upset standard business models across the CCRC industry.

Requiring CCRCs to make entrance fee repayments in a short period of time can have serious financial implications for communities, and several groups have stood up against the legislation, Senate Bill 475. The bill was approved by the California Senate on September 10 and a decision by the Governor is expected any day.

The bill comes in response to individual instances in which departed or deceased residents and members of their estates were waiting, in some cases years, to receive refundable entrance fees from CCRCs, as these payments were often conditioned upon resale of the unit.


“Families are currently being forced to wait multiple years for continuing care retirement community lump-sum repayments,” California State Senator Bill Monning, who sponsored the bill, told SHN. “SB 475 will establish protections for residents and their estates, and guard against years of delayed repayments.”

Traditionally, refundable entrance fees have been higher than non-refundable entrance fees, but offered estates the opportunity to recapture some of a senior housing investment, Liza Hing, a vice president with Cain Brothers in San Francisco, wrote in an Industry Insights report. The model of returning the fees after the resale of a unit typically worked well until the recession, when real estate values dropped and CCRCs found it difficult to resell vacant units.

“With seniors more reluctant or unable to sell their homes in order to move into a retirement community, refunds on vacated CCRC units were, on average, taking longer to repay to departed CCRC residents (or their estates) than before the downturn,” she commented in the report.


The legislative action in California could change the landscape of entrance fee options in the state and influence other lawmakers to take on similar measures elsewhere.

A Hit to CCRCs

Several senior living providers and associations voiced their opposition to SB 475, including the American Seniors Housing Association (ASHA), a long-standing senior housing advocacy, research communication and educational outreach association with the largest senior housing providers in the country counted as its members. Regulations that add interest and require quick turnaround payments will increase costs for CCRCs that could affect their financial stability and may ultimately be passed on to future residents, the association argued.

The finalized version of the California bill would require CCRCs to refund a portion of the full lump-sum payment to the resident’s estate within 120 days after the resident’s termination of contract, regardless of resale. If the remaining balance of the payment is not paid to the resident within 180 days, the balance will accrue interest at a rate of 4%, compounded annually. The interest rate jumps to 6% on any remaining balance not paid after 240 days. The legislation also allows departed residents or estates to file complaints if payments have not been made after 12 months.

In a letter to Assemblymember Jimmy Gomez, who represents the Los Angeles district, ASHA President David Schless wrote that the bill goes too far by regulating CCRCs when the repayment problem is restricted to “a few isolated cases during the recent real estate recession.”
“Requiring that all CCRCs make partial repayments and accrue interest on the balance, before a unit is re-occupied, is not the way to address this concern,” the letter reads.

Schless also argues that requiring CCRCs to disclose their re-sale history and market vacancies—another requirement in the bill—is sufficient to address the issue.

In response to the opposition from CCRCs and other industry groups, Sen. Monning adopted several amendments to the original version of the bill, including extending the time period before interest would accrue. Two groups—but not ASHA—formally withdrew their opposition to the bill after it was amended.

LeadingAge California, the state-level arm of a national non-for-profit advocacy organization with more than 6,000 members in 39 states, was originally against the legislation, but withdrew its formal opposition after Monning accepted the organization’s proposed amendments. The California Association of CCRCs (CACCRC) also withdrew its opposition in early September.

While the changes lessened the blow the bill would have on CCRCs, requiring communities to make repayments in a short amount of time could have a negative financial impact, says Steve Maag, director of residential communities at LeadingAge.

“The typical method is to use the proceeds of a reoccupancy to pay for the prior person,” Maag explains. “From a cash flow standpoint, [CCRCs] need that. If there were requirements for a very quick turnaround, there could be some impact on the financial stability of a CCRC because they may not have enough cash to make those payments. Without cash, there’s always some concern.”

American Baptist Homes of the West (ABHOW), a nonprofit operator of CCRCs, rental communities and affordable senior housing with a large CCRC presence in California, also opposes legislation that could threaten the financial stability of CCRCs. While the operator is supportive of the amendments in the bill, similar legislation could influence industry standards, Pamela Claassen, senior vice president and chief financial officer at ABHOW told SHN.

“It will have more providers be more reluctant to offer refundable contracts,” she says, noting that ABHOW communities offer the option for a refundable contract.

Sweeping Regulation

While SB 475 has been toned down in response to concerns from CCRCs, the bill still signifies complications related to the refund modeland it has both for-profit and nonprofit providers on edge nationwide.

Erickson Living, a for-profit CCRC operator with 18 communities in 10 states, is another group that keeps a close eye on CCRC legislation. Even without a presence in California, the company voiced its opposition to SB 475. Senior Vice President of Corporate Affairs Adam Kane agrees that the issue has largely passed since the recession.

“With the real estate market improved, CCRCs are doing better with returning those payments to residents,” Kane told SHN. “The time to refund has really been less and less of an issue for consumers.”

Even so, other states are stepping up to regulate refunds to ensure seniors and their estates receive their payments within a designated time period and changing CCRC contract models.

“We’re seeing an increased number of resident groups who are looking at CCRCs and their structures and wanting to try—in their minds—improve the transparency and protect their own interests,” Maag told SHN.

A regulatory bill was recently approved in the Connecticut legislature that requires CCRCs to provide additional protections to residents. Similar legislation could have the largest impact in Pennsylvania, which has the highest number of CCRCs, Claassen told SHN.

As CCRCs await a final decision in California, operators should keep their eyes on the horizon.

“Certainly, this new California legislation will play a part in changing the future landscape,” Hing wrote in her commentary for Cain Brothers. “CCRC operators, both in California and around the nation, should take this as an opportunity to re-evaluate their business models to ensure their continued success.”

Written by Amy Baxter

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