How site fees are increased
29/08/2017
It feels like every time we write an article about site fee increases in land lease communities we refer back to the review of the legislation and the fact that this was the biggest issue raised by park residents at that time. The Residential (Land Lease) Communities Act 2013 brought a new approach to site fee increases and new measures that the Government said would alleviate the pressure of constantly increasing site fees. In this article we will look at how site fees are being increased and the potential impact on home owners in the short and long term.
Fixed method increases
The Act provides that site fees can be increased by a fixed method written into a site agreement. The agreement must set out the amount of increase, or how it will be calculated and how often the increase will occur. Fixed method increases can be attractive because both the home owner and operator know when site fees will increase and by approximately how much. At least that is how it worked in the past when fixed methods were traditionally either a dollar amount, or a percentage.
The new standard form site agreement provides a number of options for fixed increases including ‘other’. We are starting to see the emergence of ‘other’ methods and some of them are a cause for concern. One fixed method that we have recently been made aware of, and that is being given to home owners in at least two communities contains this fixed method increase:
‘Site fees shall be increased by the sum of:’
- Any positive change in the CPI; plus
- 3.75%; plus
- A proportional share of any increase in costs incurred by the Operator since the calculation of the last site fee increase calculation for the following:
• electricity and water (net of any amount that has been recouped from Home Owners); plus
• gas; plus
• communication; plus
• rates; plus
• any other Government (federal, State or Local) charges or taxes other than company tax. Plus - The effect of any change in the rate of GST or similar tax that is included in the site fees.
- The amount of increase resulting from the above calculation will be rounded up to the nearest dollar.
This method of calculation is complex and it is difficult for a home owner to check whether it has been calculated correctly. It is also impossible for the home owner to plan for the increase because they cannot possibly know the impact of the various factors on their site fees.
Home owners in one community with this fixed method in their agreements have just received their first increase. The calculation is as follows:
Current site fees $181.50
+ increase in CPI 2.4% $4.36
+ 3.75% $6.81
+ Share of major cost increases $1.16
Total increase: $12.33p/w
New site fees: $193.83
The operator provided additional information about the ‘major costs’ and how they were calculated and also reduced the increase to $10.50 per week. However, home owners who had their site fees increased by notice received a lower increase of $8.50 a week.
The biggest problem for home owners who enter site agreements with fixed method increases is that the increase can never be challenged as excessive, no matter how large it is. Home owners who have signed site agreements containing increases like this one could find that in future years they face increases that they cannot afford but are obligated to pay.
Increases by notice
Home owners who have their site fees increased by notice are entitled to an explanation from the operator regarding the increase. The purpose of the explanation is to enable home owners to assess whether, in their mind the increase is reasonable.
Unfortunately many home owners report that they are being provided with a standard spiel about an increase in the operating costs and which does not enable them to make an informed decision. The NSW Civil and Administrative Tribunal (NCAT) found that one such increase notice was invalid when a home owner brought an application. Perhaps if more home owners challenged their notices on this basis operators would be more willing to provide adequate explanations, which may in turn lead to fewer disputes about the level of increase being sought.
The new system of challenging site fee increases requires at least 25 percent (25%) of home owners in the community who received the notice to apply for mediation. Those who have been through this process are, on the whole reaching settlements with only a small number proceeding to the Tribunal.
Mediated agreements can be for future increases as well as the current one and they can also encompass other issues. Commonly, agreements are being made for between two and four years and some include repairs and maintenance that have been negotiated in return for the increases. The operator still has to issue an increase notice each year and both parties are expected to comply with the agreement.
Increases in new agreements
Another way that site fees are increased is through new site agreements and this is one of the more difficult methods to deal with. The Act provides that site fees in new site agreements must be fair market value. Fair market value is defined as the higher of either the amount the home owner who is selling the home was paying or the site fees payable for sites of a similar size and location in the community. This is pretty clear but what is also clear is that some operators are either not aware of this provision or they are ignoring it.
We reported on this in our last issue of Outasite and looked at the case of a home owner who was provided with a site agreement with site fees set at $43 a week above fair market value. That home owner made an application to the Tribunal and reached a conciliated agreement with the operator. But, one of the biggest problems is that many home owners do not realise their site fees are higher than what the law permits.
The Tenants’ Union would like to see the Act changed so that site fees in all new agreements are the same as what the selling home owner was paying. After all, those fees have either been reached by agreement or set by the Tribunal and would therefore appear to be ‘fair market value’.
Be informed
The best advice we can give to home owners or prospective home owners is to get advice before signing a new site agreement or agreeing to a site fee increase. Tenants’ Advice and Advocacy Services provide free advice and in some cases they will advocate for you either with the operator or at the Tribunal.