Fixed method site fee increases
The concept of increasing rent or site fees by a fixed method is not new. Fixed method increases were possible and did happen under the (repealed) Residential Parks Act 1998. What the Residential (Land Lease) Communities Act (RLLC Act) introduced is specificity regarding what a fixed method may be, and that is what we examine in this article.
The RLLC Act provides that site fees may be increased by a fixed method which may be either:
(i) by fixed amounts, or
(ii) by a fixed calculation (for example, in proportion to variations in the Consumer Price Index or in the age pension).
The standard form site agreement, found at Schedule 1 of the Residential (Land Lease) Communities Regulation, sets out options that may be used for a fixed method site fee increase. The site agreement clearly states that only one option may be chosen; then lists the options as:
- in proportion to variations in the CPI
- by $ ___ • by ___ %
- by ___ % of the increase to the single / couple (cross out whichever is not applicable) age pension, each time the pension increases
- other (specify)
The provision and intention of the provision seem pretty clear – choose one of the options listed, but only one.
Some operators appear unhappy with the prescribed choices and prefer to demonstrate their creativity by choosing ‘other’ from the list and devising their own method. One of these methods has become quite common and is now in use in a number of communities. It looks like this:
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
• communications; 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
Rounded up to the nearest dollar.
The thing that immediately jumps out is that this method includes two of the options that are clearly intended to be only available as a single option – variations in the CPI and the percentage.
If we take a step further back and consider what the RLLC Act says about how site fees may be increased under a fixed method, we see that it is either by fixed amounts or a fixed calculation. A fixed calculation means one calculation and the Act provides the examples of “in proportion to variations in the Consumer Price Index or in the age pension.” In the method above there are a number of calculations, not just one.
Given these observations, the question has to be asked – is this fixed method lawful? We think the answer is ‘no’ but ultimately only the Tribunal or a court can decide and as far as we are aware, the question had never been put – until recently.
Kincumber Nautical Village
The method of increase cited above has been used by the operator of Kincumber Nautical Village (KNV) since 2016. Each year the method has produced increases far higher than the increases offered by the operator to home owners on the site fee increase by notice method.
In 2018 one home owner, Bob Morris, raised concerns about the method and asked the operator to consider making some changes. This led to a series of meetings between Mr Morris and the operator, and later the residents committee and operator. In September 2019 the operator decided that he would not make any changes to the fixed method.
In October 2019 fifty-two home owners from KNV made applications to the NSW Civil and Administrative Tribunal (NCAT) challenging the fixed method. The applicants argued the method does not comply with the RLLC Act, that it is uncertain under contract law, and that it is an unfair term under the Australian Consumer Law.
Bob Morris was elected to represent the home owners and the case was heard on Tuesday 28 April by telephone hearing. The Tribunal reserved its decision and at the time of going to print it has not been handed down.
In December 2019, the Tribunal made decisions regarding fixed method increases at two Palm Lake Resorts on the Tweed River.
The two communities have the same operator but the fixed method of increase was slightly different in each community. In ‘Metcalfe’ the fixed method increase term provided that site fees would increase each year “by an amount equal to the increase in CPI or 3%, whichever is the greater.”
In ‘King’ the term provided that site fees would increase each year “by an amount equal to the increase in CPI or 3.5%, whichever is the greater.”
Home owners in both communities challenged the method of increase on the basis that the RLLC Act at section 66(2) states:
A site agreement must not provide that the site fees may be increased by more than one fixed method. If more than one method is specified, the method that results in the lower or lowest increase of site fees is the applicable method.
The home owners in both cases were successful – the Tribunal found that site fees must be increased by the method that produces the lowest increase. The operator has now appealed the Tribunal decisions in both matters and they will be heard by the Appeal Panel later this year.
This article was originally published in Outasite magazine, issue 6, August 2020.