AGED CARE Alert: Changes to residential communities legislation

20 October 2015


New legislation to govern residential communities in New South Wales

On 1 November 2015 the Residential (Land Lease) Communities Act 2013 (NSW) (Act) will commence, along with the Residential (Land Lease) Communities Regulation 2015 (NSW) (Regulations). These laws replace the Residential Parks Act 1998 (NSW) (Residential Parks Act) and its corresponding regulations.

The shift in terminology from ‘parks’ to ‘communities’ is by no means the only change introduced by the Act. The new legislation is significantly more consumer friendly than its predecessor, with operators of residential communities subject to stricter obligations in respect of their relations with residents than was previously the case.

We have outlined some of the more significant changes below.

Conduct of operators

New operators will be required to attend mandatory education sessions. The number of sessions and their method of delivery (online or face to face) will be decided by the Commissioner for Fair Trading.

Operators will also be bound by new rules of conduct (Rules) concerning their dealings with residents. If an operator is found to have contravened the Rules without a reasonable excuse then it may be guilty of a criminal offence and face penalties of up to $11,000.

The Rules provide, amongst other things, that operators must:

·      know and understand the laws pertaining to residential communities, including the Act and the Regulations;

·      act with honesty, fairness and professionalism during negotiations and transactions with residents and prospective residents;

·      when acting as a selling agent for more than one home in a community, act fairly and advise any prospective home owners about the details of all available homes in the community; and

·      refrain from using false or misleading advertisements when marketing to prospective residents.

Additionally, rules relating to the use, enjoyment, control and management of a community, are now subject to a requirement that they be fair, reasonable, clearly expressed and applied uniformly to all residents. Operators should consider their current rules in light of this change.

Site fee increases

The Act places increased regulation on site fee increases, permitting two different methods. Firstly, the tenancy agreement between the operator and the home owner (site agreement) can establish a pre-determined method of calculating and timing increases in site fees (Fixed Method). Alternatively, the site agreement can allow the operator to increase fee amounts on an ad hoc basis, provided that certain procedures are followed (Notice Method).

Fixed Method

Where a site agreement includes the Fixed Method of fee increases, operators must give residents 14 days’ notice before the increase takes effect. Such notice must explain the method by which the increase was calculated – even if this information is contained in the agreement itself.

Notice Method

While the Notice Method provides greater flexibility to operators, site fees can only be increased once every 12 months. The Residential Parks Act did not limit the number of rent increases that could occur each year.

Additionally, the increase must apply to all home owners in the community that are party to site agreements with the Notice Method. That is, an operator cannot increase one home owner’s site fees without applying the same increase across the board.

Challenging site increases increased by notice

Fixed Method site fee increases cannot be challenged under the Act. However, in certain circumstances residents are able to challenge site fee increases where the Notice Method is used. The way in which they can do so is more restrictive than was previously available to residents.

The Act provides that homeowners seeking relief on the ground that fee increases are excessive must undergo mediation with the operator before they can apply to the NSW Civil & Administrative Tribunal (NCAT). Further, mediation is only available if 25% of the home owners subject to the fee increase agree that it is excessive.

There was no compulsory mediation or 25% threshold under the Residential Parks Act.

Operators should note, however, that if a home owner objects to a site fee increase on the basis that it is substantially excessive when compared to similar residential sites the community, then he or she does not need to participate in mediation before applying to NCAT for relief.

Onsite sales

Under the old law, a home owner’s right to sell a home situated in a residential community, and his or her right to use a ‘for sale’ sign when doing so, could be curtailed by the terms of the site agreement.

Under the Act, however, home owners enjoy an absolute right to sell their homes onsite.  The operator must not unreasonably refuse to enter into a site agreement with a prospective purchaser of the home and site fees under a new site agreement must not exceed fair market value.

Voluntary sharing agreements

From 1 November 2015, a site agreement can take two forms – a ‘voluntary sharing arrangement’, or a ‘rent only site agreement’.

Under a voluntary sharing arrangement, operators are entitled to payments from home owners that are separate from and additional to rent, including:

·     entry fees;

·     exit fees (payable if home is sold or removed); and

·      a specified share of the capital gain in respect of the home, or a certain proportion of the total sale price of the home.

The idea underpinning voluntary sharing arrangements is that a home owner may find it beneficial to pay the operator for the above fees in exchange for lower rent, resembling the financial arrangements permitted in retirement villages.

However, if:

·      the site agreement is to be entered into in connection with the sale of a home on the residential site, and the seller is not the operator; or

·      the site agreement is to be entered into with an existing home owner,

such arrangements may only be entered into if the operator has also informed the home owner about the availability of a rent only site agreement, and has offered to enter into a rent only site agreement with that resident.

Way forward

While the Act and Regulations create a stricter regulatory environment for operators than was the case under previous legislation, voluntary sharing arrangements and limits on the ability of residents to take site fee increases to NCAT provide welcome flexibility to the commercial relationship between residents and operators.

Written by:

Lucinda Smith | Partner | +61 2 9020 5748 |

Alexandra Adams | Lawyer | +61 2 8248 3466 |

Daniel Zwi | Graduate Lawyer | +61 2 8248 5825 |