Deferred Management Fees case settled: law reform now desperately needed
“The relief was immense”, a simple enough statement from one of the fourteen residents from Willow Lodge Over 50s Resort (Willow Lodge), but universally felt following the settlement of the long-running action over unfair exit fees, known as Deferred Management Fees (DMF).
Willow Lodge, near Dandenong in Melbourne’s south-east is a residential park which means that residents lease the land, but own the demountable building that sits on it. The resident’s DMF term was calculated in their lease as 4% of the ‘park home sale price’ for each year during which the client resided at Willow Lodge to a maximum of five years. The maximum fee being 20% of the sale price.
It is two years ago that our 14 clients commenced a group proceeding in the Victorian Civil and Administrative Tribunal (VCAT) in which they all claimed that the DMF was an unfair contract term; operated as a penalty; and was harsh and unconscionable. Some of the clients also claimed that the fees were invalid due to non-compliance with the Residential Tenancies Act 1997 (Vic) and that the site owner had engaged in unconscionable conduct. In June 2016, our 14 clients settled their claims prior to the case proceeding to trial.
Two residents from Willow Lodge have addressed the Retirement Housing Sector (RHS) Inquiry currently being held by the Victorian Parliament. As one of the residents told Parliamentarians on the Inquiry, “(the settlement has) meant that some could afford to move from the village and have enough money left from the sale to purchase a home elsewhere and not be short-changed of many thousands of dollars”.
It is staggering that despite the ubiquitousness of DMFs in retirement housing contracts, the practice is not regulated. At the Inquiry, Consumer Action is advocating for reforms to ensure that DMFs operate fairly and are less open to exploitation by retirement housing operators at the expense of older Victorians. Our recommended reforms include:
- Requiring the DMF to be calculated on the basis of the purchase price, rather than the sale price of the property to help residents make an informed choice based on the real cost. This could be reversed in cases where the sale price is lower than the purchase price.
- Capping the allowable DMF at a set percentage value of the purchase price and require that value be applied evenly over a ten-year period, rather than being “front-loaded” in the first few years of the lease, as occurred at Willow Lodge.
- Requiring choice to be offered as part of the DMF arrangement. As such, the DMF could be paid either as an exit fee or upfront. Alternatively, the consumer could choose to pay the DMF as as a type of rent, throughout the term of the lease. A benefit of presenting DMFs in this manner would be to break down the current levels of confusion and misunderstanding that surround DMFs.
- Sales and marketing materials should also be required to be clearer on the nature of DMFs, and actively advise the consumer that buying into a retirement living arrangement is not an investment in property, but a payment for services.
How to get help for Retirement Village issues
If you have concerns about the fees being charged, including Deferred Management Fees, relating to a Retirement Village, we recommend that you contact the Residents of Retirement Villages Victoria (RRVV) who provide a referral service to appropriate legal or support services. You can contact RRVV via phone (03) 9015 8402 or email firstname.lastname@example.org.