Disclosure in land lease communities – Tribunal clarifies duty

The obligation on an operator to provide a disclosure statement in the approved form before entering into a site agreement is straightforward. The purpose of the obligation is also clear – to enable a prospective purchaser to make an informed choice about the community. Given the clarity of obligation and purpose, it is difficult to understand why disclosure is becoming a major source of dispute. Perhaps a recent Tribunal case involving Hometown Australia will provide some answers.

Ms Jones (not her real name) purchased a home in a land lease community and was provided with a disclosure statement by the operator prior to signing a site agreement. In February 2021 Ms Jones signed the proposed site agreement and moved into her home.

In June 2021 Ms Jones attended a residents committee meeting where there was a discussion regarding the operator’s method of determining the fair market value of site fees in new site agreements. Ms Jones became concerned about the site fees in her agreement and arranged to meet with Kim Wright, chairperson of the residents committee. In July 2021, Kim wrote to the operator on Ms Jones’ behalf regarding the site fees in her site agreement. The operator denied any wrongdoing and refused to amend the site fees.

Through this interaction Ms Jones also became aware that there may be other inaccuracies in the disclosure statement issued to her including, whether the community is located on flood prone land and in a bush fire affected area. These issues were also raised with the operator who again denied any wrongdoing.

Assisted by Kim Wright, Ms Jones made an application to the NSW Civil and Administrative Tribunal (NCAT) regarding the site fees in her site agreement and the alleged misleading information in the disclosure statement.

Fair market value

It was an undisputed fact that when Ms Jones purchased her home the site fees payable by the selling home owner were $164.40 per week. However, in the disclosure statement, the operator stated that “the current site fees payable for the site you are interested in are $176.90 – charged weekly.” The proposed site fees for Ms Jones were $176.90.

The Residential (Land Lease) Communities Act 2013 (RLLC Act) requires site fees in a new site agreement to be fair market value and Ms Jones’ contended that was $164.40. The operator argued that the “current site fees’ in the disclosure statement refer to fair market value for the site and not the site fees payable by the selling home owner. The Tribunal rejected this contention and said “This is plainly not a correct application of the law.”

The Tribunal found that the disclosure statement required the operator to state the site fees currently payable by the home owner who is selling the home. Further, the Tribunal was satisfied the operator provided false and deceptive information to the home owner and “that it did so for the improper purpose of obscuring from [Ms Jones] the site fee increase from the rate payable by the vendor. That is, it deliberately conflated or merged its disclosure of the “current site fee” with its statement of the “fair market value” so as to create the impression there was no site fee increase.”

The Tribunal then considered what fair market value was for the site at the time Ms Jones entered into the site agreement and determined it to be $164.90. The operator was ordered to repay any overpaid amounts to Ms Jones by 31 January 2022.

We are not aware

Regarding whether the community is situated on flood prone land and in a declared bush fire prone area the operator had simply written “no we are not aware” in the disclosure statement. The Tribunal said the evidence before it was insufficient to determine whether the land was flood or bush fire prone. However, the operator’s responses “no, we are not aware” were not considered satisfactory.

The Tribunal went on to say “Section 21 imposes a duty of disclosure which cannot be satisfied by an actual or professed ignorance of the matter to be disclosed. There is an onus on the operator to disclose the facts of these matters, which may oblige it to make necessary inquiries of local and other planning authorities, if it does not know the answer. Particularly in this day and age of rapid climate change, whether the community is on flood prone land or in a declared bush fire area are important matters that a home owner has a right to know at the time they are considering purchasing a home in the community. Such matters go to their future personal safety and the security and the re-sale value of the primary asset they are interested in acquiring.”

The Tribunal found the operator had breached its statutory duty regarding the disclosure of information to Ms Jones and awarded her general damages of $1,000 to compensate her for that breach. This is a landmark decision by the Tribunal, which properly considers and makes findings regarding the disclosure obligations of operators, and the determination of fair market value. Hopefully these findings will ensure the operator complies fully with such disclosure obligations in the future.

This article was published in Outasite Lite 42. Subscribe here.