The balance of power

07/08/2019

The main factor that affects affordability for home owners living in land lease communities is site fees. When they increase it can have a major impact. As mentioned in the article on cooperative communities, site fees are reaching extraordinary levels in some communities and many home owners are struggling. In this article we look at the three methods used to increase site fees and how home owners might dispute unfair increases.

Increase by notice

When site fees are increased by notice the notice must include an explanation for the increase. The rationale behind this provision was that if home owners are informed about the reasons for the proposed increase they are better able to make an informed decision about whether or not it is reasonable.

The majority of site fee increase notices contain a list of factors cited as outgoings or operating expenses that the operator claims have increased. There is generally no detail around the list and home owners are therefore unable to assess whether the proposed increase is reasonable.

The Tenants’ Union is only aware of one challenge to the validity of a notice on the basis the list of factors did not constitute an explanation. That challenge was successful and the NSW Civil and Administrative Tribunal (NCAT, the Tribunal) found the increase was not payable.

The compulsory mediation process for site fee increase disputes was initially working well but recently we have seen an increase in failed mediations. The purpose of mediation is to bring the parties together to talk about the increase, put their positions forward, share their evidence and try to reach an agreement.

Home owners have told the Tenants’ Union some mediations have failed because operators are unwilling to share their reasons or provide any evidence in support of the increase. This frustrates home owners and takes away their ability to properly assess the validity of the operator’s claim. The Act provides that “A party must, if required by the mediator, disclose to the other party details of the party’s case and of the evidence available to the party in support of that case”. To the best of our knowledge no mediator has ever used this provision.

We are also aware that some operators simply refuse to participate in mediation despite it being compulsory. There are no consequences for nonparticipation by an operator.

When mediation fails home owners can apply to the Tribunal for an order that the increase is excessive. Over the past couple of years we have seen some positive decisions where the operator failed to provide sufficient evidence to support their case. In three matters the Tribunal awarded a lower increase than the operator was seeking and in another no increase was awarded.

The message that home owners can take from this is that if they are not happy with the explanation provided by the operator for the increase, or the operator refuses to participate in mediation or substantiate their claim, the Tribunal may provide a better outcome.

Fixed method increase

The Act prohibits home owners with fixed method increases from ever challenging the increase as excessive. That may seem reasonable given the home owner has signed an agreement to this effect, but when you look at the type of fixed method increase being used, it does become a concern. The increases we are talking about contain a number of components including percentages that will compound over the years and factors that can produce unpredictable results.

Site fee increase terms in site agreements are negotiable and home owners should attempt to negotiate better terms. In reality operators hold the power in these negotiations and site agreements are usually offered on a take it or leave it basis. Home owners can apply to the Tribunal for orders to settle a dispute about the proposed terms of a site agreement including the method of increase.

A refusal by the operator to negotiate may be a breach of the rules of conduct and an application can also be made to the Tribunal on this basis.

Home owners with multi component fixed method increases may also have a claim that the term is an unfair term under Australian Consumer Law.

Fair market value

Another way that site fees are increased is when a home changes hands. More often than not a purchaser is offered a new site agreement with site fees set at a higher level than the selling home owner was paying. The Act requires site fees to be set at fair market value and that means the higher of either what the seller was paying or the site fees payable for sites of a similar size and location within the community.

The difficulty for incoming home owners is awareness. The average purchaser does not know that site fees should be fair market value or how to work out what fair market value is. The operator has access to information about comparable site fees and if they don’t share this information or deal fairly the home owner may end up paying more than they should.

Fair market value impacts the incoming home owner immediately but it eventually affects everyone. Over time site fees in the community are lifted higher and higher and the range and level of site fees in the community is one of the factors the Tribunal can consider when deciding whether an increase by notice is excessive. The higher the site fees get, the higher the increases for everyone else are likely to be.

A home owner can make an application to the Tribunal regarding whether site fees are fair market value. We are aware of two such applications and both settled before they got to hearing with home owners achieving favourable outcomes.

In the alternative, selling home owners can seek to assign (transfer) their site agreement to the purchaser. This enables the purchaser to take over the agreement under the same terms and with the same site fees as the selling home owner.

Assignment requires the written consent of the operator but if they refuse an application can be made to the Tribunal.