“Buyer beware” appears to have become an unintentional theme in this issue of Outasite with various articles highlighting some of the pitfalls for home owners who purchase a home in a land lease community only to discover later that all is not as it should be.
Purchasing a home is a huge step in life that can involve an investment of several hundred thousand dollars. Like all decisions where such an investment is being considered, the buyer should exercise due diligence. A buyer should be sure that what they are purchasing is accurately described in any advertising materials and contracts. In the general community a solicitor usually advises of potential concerns but in land lease communities issues are not always immediately apparent and extra vigilance is therefore necessary.
Approval to operate
In New South Wales a land lease community operator must hold an ‘approval to operate’ under the Local Government Act 1993. Despite this requirement there are a number of communities that continue to operate without a current ‘approval’ and homes are bought and sold in those communities, often without the purchaser being aware that there is no ‘approval’ in place. The Residential (Land Lease) Communities Act 2013 (RLLC Act) requires an operator to disclose such information but compliance with the requirement is inconsistent. The Tenants’ Union recommends that all potential purchasers contact the relevant local council prior to purchasing a home to check whether the operator holds the necessary ‘approval to operate.’
There will be occasions when an ‘approval to operate’ application by an operator is delayed because of minor issues that are easily remedied and council should be able to give an indication if that is the case. Councils can also issue an interim ‘approval to operate’ with conditions attached. However, if there are significant issues that are more difficult to overcome the community’s future could be in jeopardy. Councils generally do not want to see communities close but ultimately that is what can happen if the operator cannot meet the requirements for an ‘approval to operate’ to be issued.
Another pitfall that is more common than it should be is that a home may sit on a site that is approved for short-term occupation only (a short-term site). Homes to be used as a residence i.e. on a permanent basis should be located on long-term sites.
Site designation is a major issue because the RLLC Act provides that an operator can issue a termination notice to a home owner on the grounds the site is not lawfully usable as a residential site. There is a saving grace in that compensation is payable to the home owner but only if, unbeknown to the home owner, the site was unlawful when the agreement was entered into.
We advise buyers to be fully informed before purchasing a home, but in this situation is ignorance better? If a purchaser discovers a site is short-term and still enters into a site agreement, that agreement can be terminated by the operator and the home owner is not entitled to compensation. But, if the purchaser enters into a site agreement unaware that the site is short-term, they will be entitled to compensation if the agreement is terminated.
The Tenants’ Union still advises due diligence. The decision to purchase a home should to be made with a full set of facts.
Some home owners have also been caught unawares when the operator has amended the ‘approval to operate’ during their tenancy and changed the site designation from long to short-term. Again, under the Act as it stands these home owners are not entitled to compensation if their agreement is terminated.
We believe the legislation needs to be amended to ensure that all home owners have access to compensation if their site agreement is terminated because the site is not lawfully usable as a residential site. We will be advocating for a change to the law when the Residential (Land Lease) Communities Act is reviewed – due in 2020.