Deferred Management Fees (DMFs) are common in many residential parks, but recent VCAT and Supreme Court decisions could mean big changes to the ways they are charged across the state. This may have an impact on you if you’ve either paid a DMF in a residential park, or have a contract that requires you to pay one when you leave. Some parks are also offering to amend residents’ leases to ensure exit fees are lawful.

If any of this affects you, we strongly recommend getting advice, either from a lawyer or by calling HAAG’s Tenancy and Retirement team. Here I’ll do my best to explain what the court decided and what this means for residents, but this is written in broad, general terms and is not a substitute for getting advice.

What are DMFs?

DMFs are common in many, but not all, residential parks. In a residential park, residents own their dwellings but rent the sites their homes occupy. Part 4A of the Residential Tenancies Act regulates this kind of housing. A DMF is most often charged when a resident sells their home, often as a percentage of the sale price of the dwelling – often a very substantial amount.

VCAT decision

A group of residents from Lifestyle Communities Wollert applied to VCAT, arguing the DMFs in their contract were unlawful. VCAT agreed the DMFs were invalid, partly because they were based on the sale prices of the residents’ dwellings. The Residential Tenancies Act requires that a site agreement specify the amount of any payment due under the agreement. VCAT agreed with the residents that, because they didn’t know what the eventual sale price of their dwellings would be when they signed the contracts, the amount hadn’t been specified, and this meant the DMFs were invalid.

Lifestyle appealed this decision to the Supreme Court. Taking it to the Supreme Court was significant because Supreme Court decisions form binding precedents, so the outcome is important for anyone with a contract like those considered in this case. 

You can read the decision here. The court dismissed the appeal, meaning the residents involved do not have to pay their DMFs. However, the reasoning the Court used was different from – and narrower than – some of the arguments made by the residents and accepted by VCAT. This makes it trickier to say what it means for other residents across the state. While we will try and lay out the key points in this article, the complexity really means that current and former residents should seek professional advice – either from a lawyer or from HAAG – if they want to know what it means for them. 

What did the Supreme Court decide?

The Court did not agree that a fee based on the sale price of a home was necessarily invalid. In fact, their decision made clear that such fees can be valid in some circumstances. They wrote that a park could charge “a fee calculated by reference to some future amount, such as the future sale price of the dwelling on the site”. 
But the Court still said the applicants didn’t have to pay their DMFs. They said the amount of the fee must be clear at the point it becomes payable. The Lifestyle agreements failed this test because they weren’t calculated just on the sale price. Instead, they were a percentage of whichever was the greatest of the sale price, the average sale price for similar dwellings in the park over the last year, or a valuation arranged by Lifestyle. This meant that even when the DMF became payable (for example, at the time of the sale), the resident wouldn’t know which way the DMF would be calculated. Because the amount remained unknown at that point, the fee had not been disclosed as required by the Act, and therefore Lifestyle could not make residents pay it.

What does this mean for other Lifestyle Communities residents?

We understand that Lifestyle has changed the way it writes its contracts, including offering amendments to existing residents. But for many Lifestyle residents, especially those on older contracts, this decision likely means you are not required to pay the DMF under your agreement.

Lifestyle Communities are establishing a program to consider repayment requests from former residents who already paid a DMF that may have been invalid. If you think that could be you, you can register your details with Lifestyle Communities. Geoff Gauci, one of the applicants in these cases and a current Lifestyle resident, is also interested in hearing from former Lifestyle residents who paid a DMF; you can email him here.

What does this mean for residents of other parks?

If you have a contract in a residential park (technically called a Part 4A site agreement) that includes a DMF, you should seek advice about whether this decision affects you.
Since the Supreme Court ruling, we have been contacted by residents from a few different parks asking what it meant for them. Some of them have contracts which clearly have the same problems as the Lifestyle ones, and so our advice has been to challenge those terms. Some have DMFs which do not have those same issues and which seem to be expressly permitted under the Supreme Court ruling, and we have told them we do not see a basis to challenge them. Others fall somewhere in the middle – it’s not clear how well the decision applies to them, and we can support them to decide whether or not to challenge those fees.

As a broad guideline, a DMF is more likely to be valid if it specifies a single, clear method of calculation, such as a percentage of either the purchase or sale price. A DMF is more likely to be invalid if it gives multiple ways the DMF might be calculated, such as a percentage of a sale price OR an average price OR a valuation. It’s those ORs, by making it impossible to know which version will apply, that can make a DMF invalid.

What does this mean if you already paid a DMF?

If you already paid an invalid DMF, you may be entitled to be reimbursed, but this will depend on your individual circumstances. Again, we recommend seeking advice.

Should you change your contract?

We have heard that some parks are offering to alter residents’ contracts so that any DMFs included are still allowed following these decisions. A park can’t make these changes without your consent – both parties would have to agree to any changes. I’m starting to sound like a broken record, but you should seek advice before agreeing to any contract change. 
Does this also apply to retirement villages, or in other states?

DMFs are also common in retirement villages, and in some other parts of Australia. However, retirement villages are covered by different laws, with different rules about fees and charges. This means that these decisions don’t affect retirement village residents.

The same is true if you live in a residential park outside Victoria – different laws will apply to you, so these decisions won’t directly change anything about your agreement. You may want to seek local advice about whether there’s any basis to challenge your DMF under local laws.

Want advice about what this means for you?

You’re welcome to call our retirement workers on (03) 9654 7389 and press option 2. The team can give you some basic information, but will probably need you to send us a copy of your contract to give you specific advice about what this means for you.