Lifestyle Communities VCAT decision

[Shirley Graves-Mortimer]

Hello all

You may be aware of the Lifestyle Communities business model - land owned by LC and the semi-transportable homes on that land owned by residents - this is allowable under the Residential Tenancies Act.  But for the fact LC is a for profit business, the model sounds a bit like a CLT does it not?

But as reported by The Age today in an article titled "Retirees saved from 'financial prison' in landmark decision against developer", VCAT found that LC's fee structure to be "unfair".

It is sobering reading.

Derek Mortimer

 

[Michele Sabto]

Thanks Derek. Wasn't able to read the full Age story as its paywalled, but I understood from other sources that taking a % of the sale price on exit was one of the problems because this means that at the point of purchase the entering resident can never know what the exit fee will be. So presumably this poses a problem for exit formulas in CLTs that also use the sale price - ie. resident's entitlement to capital gain is taxed at a % of the capital gain. Hopefully the decision will be published soon on VCAT's significant decision website.

[dmor...@dfmortimer.com.au]

Hello Michele

Yes you are right about the incoming purchaser being unable to calculate what LC called the “deferred management fee” (DMF). The DMF is paid by the purchaser at the end of their tenure.

LC has since released a statement to the ASX to the effect that it will now use a “pro rata” based methodology to calculate the DMF. They say that methodology will permit purchasers at the start of their tenure, to see what their DMF will be say in five years’ time when they might exit ie “upfront”.

 

VCAT’s decision is now on AustLii.

 

As I have mentioned informally to people, I intend to post an “occasional paper” on the case, specific for CLTs, on this google group in the next few weeks. There is more in the decision for CLTs than just the DMF.

 

Derek Mortimer

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[Karl Fitzgerald]

Interesting Derek, I'll look forward to your piece. the point of difference is that the LC is for profit. The DMF was unclear. In discussions with Adele Ferguson when she did the 730 Report piece last year, she clarified that the DMF was a set fee, regardless of market valuation.   

I expect NFP housing can justify a resale formula/ exit fee as part of the stewardship approach to funding more affordable housing. I agree more transparency is good, and a schedule of expected exit fees could be provided alongside the contract of sale that both the incoming resident and their lawyer have to sign. However, even with the extensive CLT education process for incoming residents in the US, there is still a baked in mentality of significant capital gains upon sale amongst some. This will be an ongoing challenge for those working towards the de-commodification of housing. 

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