Fair Market Value – A win in one case and an anomaly uncovered in another

An anomaly has been exposed in the safeguards for fair market value when setting site fees in new site agreements, when the operator owns the home that is being sold.

A recent case at the NSW Civil and Administrative Tribunal (NCAT) Appeal Panel, uncovered the anomaly in the safeguards for application of fair market value in the Residential (Land Lease) Communities Act 2013 (RLLC Act).

In this matter, the operator, Hometown Australia, purchased a home from a former home owner and undertook refurbishments to the home prior to selling it on a few months later. The new home owner, Ms Jones (name changed for privacy), signed a site agreement with the operator and agreed to pay site fees of $192 per week. After living in the community, Ms Jones discovered that her site fee was a lot higher than others and the principle of fair market value had not been followed by the operator. An application was lodged at the Tribunal and Ms Jones sought orders for the site fee to be set at fair market value and compensation for the difference between site fees charged and fair market value since she moved into the community. 

Ms Jones was successful at the Tribunal with the assistance of Kim Wright, a resident advocate (see also article on page 20). Orders were made that the current site fees exceeded fair market value and for the site fee to be set at $164.40 per week. Hometown Australia lodged an appeal of this decision and the Tenants’ Union represented the respondent Ms Jones in the appeal matter.

Hometown’s argument at the original Tribunal hearing and before the Appeal Panel hearing centred around arguing that Part 10 of the RLLC Act did not apply if they were the vendor of a home to an incoming home owner. They argued Part 10, section 104 RLLC Act only applied when a home owner was selling their home on site to another owner and was not applicable when an operator was selling a home. Section 109 of the RLLC Act requires that the site fees in the new agreement with the prospective purchaser do not exceed fair market value. The legislation outlines that fair market value is the higher of the site fees currently paid by the home owner who is selling the home and the site fees paid for other homes in the community of similar size and location. The Appeal Panel stated s109 could only apply to Hometown if they met the definition of a home owner under the RLLC Act at the time they sold the home.

The Tenants’ Union, representing Ms Jones, argued that Hometown was captured by the definition of home owner as a successor in title to the previous home owner at the time they sold the home. The Appeal Panel did not agree as they found that to be a successor in title for the purposes of the definition of home owner in s4 of the RLLC Act the successor must be someone that owns a home that is the subject of a site agreement. Hometown owned the home but at the time it was selling the home there was no site agreement that it was subject to and therefore they are not required to comply with s109 in setting the new site fee in the agreement with Ms Jones. Hometown was successful in their appeal and the orders made in the original Tribunal application were set aside.

The Tribunal member who made the initial decision made this important statement in the reason for their decision:

“I have taken into account the parties’ submissions about statutory construction and the second Reading speech of the Bill. In that regard there is no doubt the legislation is socially beneficial. It seeks to protect an often aged and impecunious population from potentially vulnerable situations regarding a matter of great importance, namely secure housing. The level of rents home owners are required to pay is a main area of concern, as evidenced by the numerous provisions relating to the control of that issue. It would be an unlikely, if not absurd result, if the legislation were to be interpreted so that a significant control on the level of rents was able to be removed by an operator, simply by buying and reselling 1 home in a community. As can be seen here, by buying and selling the home on site 4, the applicant has been able to justify, whether rightly or not, significant increases in rents (up to 15%) on at least 5 other sites.…” 

The Appeal Panel in allowing the appeal by Hometown Australia did say:

“We are conscious that our decision highlights a potential anomaly in the application of the safeguards in, for example, s 109 of the Act. That is, that those provisions do not apply when the vendor of a home in a community is the operator itself with the consequence that an operator is not subject to the same restrictions in setting site fees for a new site agreement as it would be if requested by a purchaser or prospective purchaser from an owner who is not also the operator. It is for the legislature to consider if there be an anomaly and, if so, whether and in what manner it may need to be addressed by legislative amendment”. [paragraph 37]

We hope that this loophole will be closed during the current review of the RLLC Act. The Tenants’ Union has suggested to the Government that the fair market value provisions move out of Part 10 RLLC Act and into Part 4, which is about entering into site agreements and would close this anomaly.

A win

In another recent decision Kim Wright, resident advocate, assisted Ms Smith (name changed for privacy) to lodge an application at the Tribunal in relation to her site fees and misleading and deceptive information in the disclosure statement. Ms Smith purchased a home in the community in 2019 from the previous home owner. The operator provided Ms Smith with a disclosure statement at the time of entering into a contract to purchase the home which states the current site fees were $170.10. After moving in Ms Smith discovered that the former home owners site fees had been $162.55. She also found out that similar sites to hers in size and location had much lower site fees than what she was paying. 

During the Tribunal hearing the operator only provided one comparison site in outlining how they determined fair market value. Ms Smith provided a number of comparisons and the average site fee for those sites was $159.10. The Tribunal stated in the written decision that the fair market value for the site at the time of signing the agreement was $162.55. Ms Smith was awarded a refund in the difference between fair market value and the sites fees she was charged since she signed the site agreement. She was also awarded $1,000 non-economic loss compensation for the distress caused by the operator providing her with a disclosure statement that contained false and misleading information.

The operator paid Ms Smith the amounts ordered by the Tribunal but to date have refused to acknowledge that Ms Smith’s site fee should have been $162.55. There have been two increases in the site fee since the agreement commenced, which means, based on the decision of the Tribunal, Ms Smith’s site fees should now be $173.85 but the operator is continuing to charge $181.40. Ms Smith has written to the Tribunal asking the Member to correct the orders to make it clear the current site fee that she should be charged.

This article was published in Outasite magazine issue 8. Outasite is published annually. Outasite Lite email newsletter, is sent several times a year – subscribe here. All past issues are available in the archive.