The benefits of assignment
29/08/2017
In the last two issues of Outasite we have written articles about the assignment of site agreements. We have talked about the value of the right to assign, the campaign to keep that right and why we think NCAT got it wrong in the Farraway case. However, there is still some confusion, so in this article we will unpick the law and unpack the issues.
What is assignment?
Assignment basically means transfer and in the context of land lease communities what we are talking about is the transfer of a site agreement from one home owner to another. It is a process that most commonly occurs when a home is sold. Ownership of the home transfers from the seller to the buyer and the site agreement can also be transferred.
Why assign?
The simple answer to this question is to protect the incoming home owner from site fee increases, additional fees and charges and detrimental terms that may be in the new site agreement being offered by the operator. When a site agreement is transferred the terms under which the vacating home owner occupied the site remain the same for the new home owner.
New site agreements
To explain the merits of assignment we need to look at some of the issues around new site agreements that home owners have raised with us.
First and foremost is site fees. We also discuss this in our article on site fee increases (see page 15). The Act requires that when an operator enters into a new agreement with a home owner site fees must not exceed fair market value. Fair market value is either what the current home owner (the seller) is paying or what home owners with similar sized sites in a similar location are paying. Despite this apparent protection the Tenants’ Union has been advised by home owners that site fees in new agreements are regularly anywhere between $20 and $43 a week above fair market value.
This impacts on all current and future home owners. Each time a home owner enters a community and accepts a new site agreement with higher site fees the balance tips towards the higher site fee becoming fair market value for that community. And, when the next site fee increase by notice comes around the operator can use this to argue for a higher increase from all other home owners in the community.
Also connected to site fee increases is the type of fixed method increase that is starting to emerge. We also discuss this in the site fee increase article in more detail. Fixed method site fee increases can never be challenged as excessive no matter the result of the calculation. Increases linked to outside factors could yield unexpectedly high increases and there is nothing the home owner can do.
To put all of this into context let’s look at an example:
Fred is selling his home to Hilda. They have agreed on a price and the deposit has been paid. Hilda has met with the operator and she has been provided with a copy of the proposed site agreement. Hilda compares Fred’s agreement with the new one.
Fred’s agreement
Site fees: $185 a week
Fixed method increase: 3.5%
New agreement
Site fees: $205 a week
Fixed method increase: $3.00 plus any increase in CPI plus 3%
Hilda will clearly be better off financially under the assigned agreement (i.e. Fred’s).
Now, we know that some terms of a site agreement are supposed to be negotiable, including the method of site fee increase, but in reality site agreements are offered on a take it or leave it basis. The operator is not required to enter into a site agreement and can refuse to do so if the potential home owner does not accept the terms offered. Let’s assume that Hilda has tried to negotiate the terms of the new agreement with the operator and has failed to gain any concessions – what can she do?
Assignment and the Law
Fred can ask the operator to consent to the assignment of his site agreement to Hilda.
The Act provides that “a home owner may, with the written consent of the operator of the community… assign the site agreement”. This is straightforward enough. Where it gets tricky is whether the operator can unreasonably refuse a request to assign a site agreement. We say no, they cannot but the Act is unclear. We believe there is a drafting error in this provision of the law and it refers to a ‘tenancy’ agreement where it should refer to a ‘site’ agreement.
If the operator refuses Fred’s request he can apply to the NSW Civil and Administrative Tribunal (NCAT) and ask NCAT to make orders for assignment. Because of the error in the Act Fred may have to make some complex arguments about statutory interpretation so we would suggest he gets some help from his local Tenants’ Advice and Advocacy Service.
New site agreements and the Law
In the alternate Hilda or Fred could make an application to NCAT about the terms of the proposed site agreement or the proposed site fees. It is unlikely that NCAT could make orders about the fixed method increase but, if the proposed site fees were found to exceed fair market value, orders could be made to set the site fees at a lower level.
Advocating change
The Tenants’ Union has been working on the issue of assignment for a number of years, along with members of the Residential Parks Forum. It is our view that the Government should fix the error in the Act by changing ‘tenancy’ to site’ agreement in section 45(3).
We would also like to see the Act amended so that site fees in new agreements cannot exceed what the current home owner is paying.
We will continue to advocate for these changes. In the meantime, any home owner who wants to assign and is having difficulties can ask their local Tenants’ Service for assistance.
Also, if you are a new home owner and the site fees in your agreement exceeded fair market value you may still be able to make an application to NCAT. Again, you can get free advice from your local service.