Your site fees and how they can be increased
03/11/2015
The Residential (Land Lease) Communities Act 2013 introduces a new possibility for the setting of site fees in new site agreements. The standard form agreement provides for site fees to be set at a percentage of the Age Pension. This is an interesting inclusion because the percentage will be accurate only for a short time and it therefore appears to be unnecessary. It also has the potential to confuse.
The first question is what is meant by Age Pension? The definition in the site agreement says it’s ‘the age pension payment made under the Social Security Act 1991 of the Commonwealth’ but it is unclear whether it includes the energy and pension supplements.
Secondly, the Age Pension increases twice a year in March and September but this does not mean that the site fees automatically increase. Site fees can only be increased according to the Act and this does not include automatic increases.
If you are entering into a new site agreement under the Residential (Land Lease) Communities Act 2013 and are considering setting your site fees at a percentage of your pension you should consider getting independent advice before you sign.
Another new provision is that operators are now required to ensure that home owners are able to pay their site fees by at least one method for which the home owner does not incur a cost (other than bank fees) and which is reasonably available.
And remember, the operator cannot demand that you pay your site fees more than two weeks in advance.
Site fee increases
The Act provides for two methods by which the site fees of home owners can be increased – fixed method and increase by notice.
Fixed method
Fixed method site fee increases are not new and there are many examples in existence throughout NSW. Fixed method increases are written into site agreements, which set out when and how the site fees will be increased. The Act says that the site agreement should specify only one method of calculation for an increase; where there is more than one method included, then the one that results in the lowest increase is the one that applies.
For many years there have been different opinions about whether increases written into site agreements continue after the fixed term ends. The new Act provides clarity by enabling the fixed method to apply for the duration of occupancy or a set number of years. The number of years can be equal to the length of the fixed term or it can be for a longer period.
If you have been offered a site agreement with a fixed method increase you should carefully consider how the prescribed increase will affect your site fees over a number of years. Percentage increases compound over time; that is, the increase gets larger each year because the calculation is based on a percentage of a figure that continues to grow (like compound interest).
Example
Site fees start at $160 with an annual fixed method increase of 5%.
In year 2 the site fees will increase by $8.00 to $168 ($160 + 5%).
In year three the site fees will increase by $8.40 to $176.40 ($168 + 5%).
By year five the site fees will be $194.48.
In year ten the site fees will have reached $248.19, which is an increase of almost $90 a week on the original cost.
A fairly common method of site fee increases is a Consumer Price Index (CPI) increase. The CPI has been stable recently but it can vary considerably and this could happen if the term applies for a long period. Again, it is important to consider the possible future impact before entering into a site agreement with a fixed method CPI increase that continues for a long number of years.
Neither the Act nor the agreement specify which CPI is to be used in relation to the fixed method and should a dispute arise it could result in a determination that the term is void because it is uncertain. The Tribunal has found on many occasions that methods for calculating site fee or rent increases must be clear and understood by the parties to the agreement.
The new Act also allows for fixed method increases to be linked to increases in the Age Pension. The increase is expressed as a percentage of the pension increase. If this method is agreed to it is then the only way the site fees can be increased.
There is no limit on the number of fixed method increases each year but the agreement must set out how often they are to occur (except for increases linked to the Age Pension, which will occur each time the pension increases).
The operator is still required to provide a home owner with 14 days notice of a fixed method increase.
Remember - fixed method increases cannot be challenged as excessive under the Residential (Land Lease) Communities Act 2013.
Increase by notice
Home owners who are not on the fixed method of increase can only have their site fees increased once each year. The operator must issue a notice of increase to each home owner in the community at the same time. The notice of increase must also give at least 60 days notice and it must provide home owners with an explanation for the increase.
An increase by notice can only be challenged as excessive if at least 25 percent of home owners who received the notice of increase agree to challenge it. If this is the case the first step is to make an application for mediation to the Commissioner for Fair Trading. This application is a compulsory part of the process and must be made within 30 days of receipt of the notice of increase.
A mediator will bring the parties together with the aim of reaching an agreement about the increase. If agreement cannot be reached then the home owners can apply to the NSW Civil and Administrative Tribunal (NCAT). This application must be made within 14 days of the mediation failing.
In determining the level of increase the Act sets out a number of factors that the Tribunal can consider. Of greatest concern are the ‘projected increase in the outgoings and operating expenses’ and ‘any repairs or improvements to the community planned by the operator’. These are problematic for two reasons: home owners could end up paying for work or improvements that never eventuate; and they remove any requirement on the operator to provide evidence to support part of the proposed increase.
To compound the unfairness the Act also takes away the Tribunal’s discretion in setting site fee increases: ‘The Tribunal cannot make an order that would result in an increase lower than that needed to cover any actual or projected increase (established to the satisfaction of the Tribunal) in the outgoings and operating expenses for the community’.
Other factors that the Tribunal may consider are in many ways similar to the factors currently in the Residential Parks Act 1998.
Individual application
A single home owner can apply to the Tribunal only if their increase is substantially excessive when compared with increases for similar residential sites in the community.