Appeal Panel says site fee increase is fixed method

KNV appeal decided

The anticipation is over. The Appeal Panel of the Tribunal has handed down the decision in Kincumber Nautical Village Pty Ltd v Morris & Ors and it is not good news for home owners. The Appeal Panel allowed the appeal and set aside the original decision.

In its reasons for the decision the Appeal Panel stated the principal issue in the appeal was whether a formula for calculating site fee increases, that is made up of a number of components, falls within the meaning of the  term “a fixed method” in sections 65 and 66 of the Residential (Land Lease) Communities Act 2013 (RLLC Act). The Appeal Panel noted there is no definition of the term “a fixed method” or “a fixed calculation” and then went on to consider the legal submissions of each of the parties on this point.

The home owners relied on the Macquarie and Oxford English Dictionary definitions of “fixed” as meaning “definite; not fluctuating or varying” and  “definitely appointed or assigned; not fluctuating or varying: definite, permanent”. The operator agreed that “fixed” in the context of the RLLC Act means definite.

The home owners submitted that the method in their site agreements is not fixed because it is not definite. Certain components vary or fluctuate and it does not provide the certainty to home owners intended by the Act. Additionally, the standard form site agreement enables an operator to choose ONLY ONE option from:

• in proportion to variations in the CPI
• a dollar amount ($)
• a percentage (%)
• a percentage of the increase in the age pension
• other (specify).

The operator of KNV chose ‘other’ but included CPI and a percentage in the method. The home owners argued the operator was not able to include two options that were available as single options in a fixed method, because that would mean it was not a fixed method but a number of methods.

The operator argued the method is a single fixed method made up of a number of fixed calculations and that it does provide certainty to home owners because they know exactly how the increase will be calculated each year.

The Decision

The Appeal Panel agreed with the operator. It found:

“in providing for a site fee increase in accordance with a fixed calculation it is not the amount of the increase which is relevant but whether the method for calculating the increase allows a home owner at the time they enter into this site agreement to know with certainty how an increase is to be calculated and that the method of increase will not vary from year to year. In our view there is no bar on such a calculation comprising a formula containing multiple integers or components.”

It held the view that it is irrelevant whether a fixed method contains a number of components as long as the calculation is ‘fixed’, that is definitely ascertainable.

The Appeal Panel was satisfied the Tribunal had erred at first instance in its construction of sections 65 and 66 of the RLLC Act and was wrong to conclude there was a breach of section 66 (2). It went on to say:

“the Tribunal ought to have concluded that, pursuant to s66 (7) of the RLLC Act, the terms of the site agreement providing for fee increases were not open to challenge and that the Tribunal lacked jurisdiction to determine the applications.”

On that basis the Appeal was allowed.

Home owner reaction

The 52 home owners at KNV who challenged the validity of the increase method are extremely disappointed by the outcome. Bob Morris, who represented the home owners is “stunned by the decision” and believes the Appeal Panel got it wrong. Bob said:

“This case was about statutory interpretation and the intent of the legislation, the RLLC Act. The Appeal Panel has relied on the fact that the RLLC Act does not specify the meaning of “fixed method”. However, the Appeal Panel may have been unaware of its own earlier decision of Principal Member A Suthers and Senior Member G K Burton SC in Palm Lake Resort P/L v King and Metcalfe [2021] NSWCATAP 195. That appeal on point, was heard shortly before the KNV appeal on 16 February 2021 with a decision handed down on 30 June 2021. That case was also about the meaning of sections 65 and 66 and in dismissing the Appeal, the Appeal Panel in Palm Lake noted at paragraph 69:

“Other (specify) at the end of a list cannot be simply at large. In context it is appropriately governed by the other items in the list, all of which are single means or types of increase which specifically include, as single rather than composite means or types, the two means or types that feature in the owner’s formula as it currently stands.”

This was exactly the argument put by the residents of KNV and that makes our result more disappointing and difficult to accept.”

The Palm Lake decision was, as Bob says “handed down before ours but was not referred to in the judgement. It would seem its relevance is critical and could have resulted in a different statutory interpretation in our case.”

Bob believes the decision means it is imperative that the review of the Act addresses the ambiguity in the Act regarding fixed methods. He has sought support from the Liberal Member for Terrigal, Adam Crouch MP, and Liesl Tesch MP, the Labor Member for Gosford, who both spoke in support of the KNV residents in the NSW Parliament. It is now in the hands of the The Hon Kevin Anderson MP, Minister for Better Regulation and Innovation.

But wait, there’s more

On 11 October the KNV Residents Committee met with the operator to discuss site fees. The Committee expected that a negotiated agreement of increases of $6, $6, $6 and $7 per week over four years would be put in place. Bob Morris was at the meeting and said “This agreement was reached in June before the Appeal was decided but it couldn’t be implemented because it was dependent on applicants in the case waiving their right to claims of overpaid site fees. Section 12 of the Act prevents this but the operator told the negotiating committee he would bring back the proposal even if he won the NCAT Appeal.

It was incredibly disappointing when that did not happen and instead, draconian proposals were foreshadowed by KNV for those on the fixed method, resulting in immediate increases of up to $14 per week and increases next year of up to $20 per week. With no fair and equitable agreement, the only realistic option for home owners is to appeal to the Supreme Court.”

An application (Summons) commencing an appeal to the Supreme Court of NSW was filed on 12 October 2021 appealing from the decision of the NSW Civil and Administrative Tribunal - Appeal Panel in Kincumber Nautical Village Pty Ltd v Morris & Ors [2021] NSWCATAP 275. A representative proceeding has been lodged and the Supreme Court will be asked to set aside the NCAT Appeal Panel decision dated 14 September 2021 and determine the proper construction of the RLLC Act sections 65 and 66 that deal with fixed method site fee increases.

This article was published in Outasite Lite 40. Subscribe here.