Not Fit for Purpose: VCAT Ruling Signals Land Lease Shake-Up

Every so often, a tribunal case sends shockwaves through an industry and becomes a clear marker of what’s ahead. This year, the Victorian Civil and Administrative Tribunal (VCAT) delivered one such decision. In Dowling v Lifestyle Management 2 Pty Ltd, residents challenged two long-standing practices in lifestyle communities—deferred management fees (DMFs) that are charged upon a resident’s exit and the practice of charging rent after the death of a resident while also prohibiting occupancy until the home is sold. What began as a single complaint in 2023 grew to 83 applications from residents across Lifestyle Communities’ Wollert and Chelsea Heights parks, both operated through subsidiaries of the ASX-listed group. In an outcome that Lifestyle Communities called “unexpected”, the tribunal declared percentage-based exit fees void and called post-death rent structures “harsh, if not unconscionable”. ▲ Bugden Allen special counsel Julia Moroz: Decision sets a benchmark. Lifestyle announced last week it would appeal. But the company has already felt the financial shock, reporting in its full-year results a $135.5 million after-tax writedown of its investment properties and a $54.5 million after-tax provision to refund previously collected DMFs, sinking the company into a $195.27 million loss. VCAT arranged pro-bono counsel for the four residents selected as test cases and the matter was presided over by the VCAT president Ted Woodward, adding further weight to a decision that “sets a new benchmark” in the sector, Bugden Allen special counsel Julia Moroz says. “The judgment openly highlights that [current legislation] is fundamentally mismatched to the modern lifestyle community business model,” Moroz says. “Homes are immovable, high-value assets, not caravans, yet they are regulated under a framework designed decades ago.” Why it matters The Tribunal recognised how drastically lifestyle communities have evolved, with homes now valued between $150,000 and $300,000. “The homes in lifestyle communities are substantially more expensive than when the legislation was first introduced and they’re rarely moved,” Moroz says. In fact, according to a preamble from the tribunal, there are 4233 owner-renters who live in homes that are not registrable movable homes, highlighting just how far the sector has shifted from its caravan park origins. Once considered holiday or short-stay options, since the 1980s they have become hubs for home ownership and long-term tenancies. ▲ Lifestyle Communities Wollert, 40km north of the Melbourne CBD. This growth, especially in retirement-focused and, more recently, land-lease models, has outpaced the law. “The tribunal effectively said, if Parliament wants to regulate DMFs or modern lifestyle communities properly, it’ll need to update the law,” Moroz says. Victoria has already been informally reviewing Part 4A of the Residential Tenancies Act 1997, which governs site agreements for those who rent the land their home is on, Moroz says. “And this ruling will put significant pressure on the government to modernise the framework to adapt with the ever-changing landscape within Victoria. “So while nothing has been formally announced, legislative reform will likely happen in the near future.” The case The Dowling decision covered two main issues. The first was whether deferred management fees (DMFs) were void because they did not disclose the actual amount payable at the time that the residents entered into contracts, as required by the Residential Tenancies Act 1997 (Vic). “The tribunal’s refusal to accept percentage-based DMFs as compliant fees under Part 4A effectively dismantles a core revenue mechanism used by many operators and, in the majority of cases, by the same entities that originally developed the communities,” Moroz says. Secondly, VCAT considered whether it was acceptable for operators to charge rent after a resident had died, while also preventing anyone from occupying the home until it is sold. “The finding that post-death rent structures are “harsh, if not unconscionable” further increases exposure”, Moroz says. “Taken together, the case highlights that operators cannot rely on sophisticated drafting or industry norms to salvage fee structures that lack transparency or calculability. “It goes much broader into Part 4A and now we have the clearest and most authoritative interpretation of that section we have ever had.” What it means While the decision is technically limited to Part 4A communities, Moroz says, its reasoning reverberates across all forms of housing where residents pay exit fees or hold long-term occupation rights. “Land lease communities are most exposed because they sit close to the Part 4A model and often rely on the same DMF-style structures,” she says. “Retirement villages regulated strictly under the RV Act are less vulnerable but lifestyle villages, over-55s estates and hybrid private-contract models may face similar scrutiny. “And the broader trend is unmistakable, that VCAT and other tribunals are increasingly willing to pierce contractual language and assess the fairness, clarity and functional reality of residential arrangements. “If a model depends on opaque cost-sharing, future-value calculations or restrictive occupancy controls, it is now at risk.” ▲ Lifestyle Communities Chelsea Heights, 45km south-east of the Melbourne CBD. The sector should be prepared for the likes of clearer caps or prohibitions on certain exit fees, prescribed disclosure formats, post-death occupancy rules and more precise definitions distinguishing lifestyle communities from caravan parks. “Developers and operators should assume that VCAT, regulators and lawmakers will continue moving in a consumer-first direction. This means proactively redesigning agreements to prioritise clarity, calculability and fairness,” Moroz says. As land lease continues to grow as a sector and the pressures to diversify housing options continue across the country, this will not remain a Victorian problem for long. “Across Australia, regulators are tightening seniors-housing legislation, pushing for simple, transparent and resident-friendly pricing models. “The trajectory is unmistakable that complex DMFs and hard-to-calculate fees are being phased out across the country and tribunals are increasingly consumer-protective, especially when dealing with retirees or older residents.”

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