The tribunal in Victoria has ruled the contract requirement of departing residents from land lease operator Lifestyle Communities is void based on a legal/legislative wording, despite residents being well informed when they signed that contract.
Simply explained, the Victorian Residential Tenancies Act relevant for caravan parks, and thus land lease communities, requires all fees to be clear and quantifiable when the contract is established.
The Lifestyle Communities contract DMF is calculated on the exit value of the home, which at the time the contract was entered into was unknown. Therefore, the DMF fee is void, says VCAT.
The ruling infers the DMF now doesn’t need to be paid, and in fact all past paid DMFs are liable to be refunded. Lifestyle Communities is 22 years old, so 22 years of DMFs, which we calculate roughly could be $300 million.
But here is the thing. Hand on heart, we can verify that Lifestyle Communities, who have advertised with us, made it very clear in every communication that their contract had a DMF. So why should residents escape paying it? And what will be the cost?
Their customers are not aged 75+ like retirement village customers; they are 55 to 70 year old active members of the community. They will have understood the deal being offered.
This case revolves around one resident that was unhappy with his decision to move into one Lifestyle Community, and when he went to sell he found the demand was down thanks to the emergence of Stockland, GemLife and Ingenia Lifestyle launching land lease communities without DMFs.
A retired detective, he searched the contract for a flaw and found it in the above fact that the DMF value had to be known when the contract was signed.
He went to the journalist Adele Ferguson, who credits the detective for the legal insight, and the ABC, and the demolition of Lifestyle Communities commenced.
Adele described the charging the DMF as ‘shocking’, but doesn’t acknowledge that the detective was obviously sufficiently legally competent to know what he was signing with his ingoing contract.
So in our mind, the law is an ass, an expression Charles Dickens coined in Oliver Twist. (Mr. Bumble uses the phrase to express his frustration with a legal rule that he finds absurd).
The customers knew what they were signing, but the law says that knowledge and responsibility is also void.
Compounding all this is the fact that VCAT took this case to the Victorian Bar’s pro-bono committee and secured the leading law firm Baker McKenzie and two barristers who specialise in tenancy law, one being a Senior Counsel, to represent the four residents who complained about the contracts. The law turbocharged the legal proposition, not the rational proposition.
What is the lesson? It is inarguable that all incoming residents must get legal advice before entering both a land lease and retirement village contract. To not do so leaves operators vulnerable, and by extension residents and their families.
Consider this: every Lifestyle Communities resident will now be wondering what the impact will be on the value of their home. How much has their capital gain been hit? And how long to sell?
The mums and dads that have directly or indirectly invested in Lifestyle Communities have also had a big hit.
In January 23 their shares were worth $19.98, valuing the company at $2 billion. Yesterday the price was $4.15 and the company is worth $500 million, before it has to pay back the guestimated $300 million.
Prior to the Adele Ferguson report, Lifestyle Communities had an exemplary corporate culture as can be seen in this 2023 Annual Report. The residents were the salespeople for the company.
The law has demolished this. Can it happen to others?
We did a ring around to see what is the percentage of customers that get legal advice before signing a contract. For village operators we found that the big privates score between 60% and 95%. For the Not For profits, it is at best 50%.
This is a significant risk for the sector, as the above story confirms. Every customer should be required to have legal advice and every family should be given copies.
Because the law is an ass.
