Throughout the recent law reform culminating in the Retirement Villages Amendment Act 2024 (WA), there has been a focus on ensuring potential retirement village residents understand the exit fee regime, that there is clear disclosure of the pricing information and that the exit entitlement is paid within 12 months after the resident permanently vacates. However, there has been no suggestion that it is unfair for the calculation of exit fees to be based on the ingoing contribution to be paid by the next resident.
By contrast, the Victorian Civil and Administrative Tribunal (VCAT)[1] has recently held that under a land lease contract (site agreement), governed by the Residential Tenancies Act 1997 (Vic), a deferred management fee (DMF) could not be charged by a lifestyle village operator because the amount was not known by the resident when entering the contract. This was because the site agreement provided for the exit fee to be based on the higher of the amount paid by the next resident and the average sale price for equivalent homes.
Notwithstanding the VCAT’s decision declaring the right to payment of the DMF void, we do not think retirement village operators in WA should be concerned. In our view the case does not add anything to what is the current situation. Rather, the case simply reinforces that for a retirement village operator’s exit fees payable under a residence contract to be valid, the disclosure statement to the contract must contain certain details and the exit fee’s calculation and purpose must be clearly and plainly stated in the contract.
Further, the provision in the residence contract providing for payment of the exit fee must not be an unfair term in contravention of the Australian Consumer Law. If a retirement village operator was to get any of these things wrong, then like the lifestyle village operator in the VCAT case, the right to payment of the exit fee would be declared void.
This article provides an overview of the VCAT case and concludes with a refresher as to what retirement village operators in WA have to get right to ensure an exit fee in their residence contract is valid and enforceable.
Land lease communities, also known as lifestyle villages, manufactured home estates, or residential parks, have become an increasingly popular housing choice for older Australians and those seeking affordable, low-maintenance living. Residents typically own their dwelling but lease the land on which it stands from the community operator, paying regular site fees (rent) for the right to occupy the site and access shared communal facilities.
These arrangements provide an alternative to traditional retirement villages and home ownership, and their contractual framework can be complex, particularly regarding exit fees and other charges imposed when residents leave the community.
The case decided by VCAT was brought by over 80 residents of the Wollert Lifestyle Community, located in Melbourne’s northern suburbs, against Lifestyle Management 2 Pty Ltd, the company responsible for operating their land lease community. The residents, represented by consumer advocates and legal counsel, challenged a range of contractual clauses within their site agreements, most notably the deferred management fee (DMF) that was imposed as an exit fee upon the sale of their homes or upon vacating the premises.
The core of the dispute revolved around three issues.
Firstly, there was an argument about whether the DMF was void because it was a fee for giving consent to the assignment of a site agreement, and the law prohibited receiving a fee for giving consent.[2] The VCAT held that the DMF was not a fee for giving consent.
Secondly, there was consideration of the requirement in a site agreement to include and disclose:
The site agreement did specify the purpose of the DMF and disclosed the method of calculating the DMF, but not the actual amount. VCAT held that this was a breach of the law because the amount of the DMF was ‘neither known nor knowable when the site agreement was signed’.[5] Whilst the site agreement provided for the DMF to be based on the higher of the amount paid by the next resident or the average sale price for equivalent homes, the amount of the DMF only became known when the home was sold and it was determined whether the sale price was higher or lower than the average of sale prices for like homes or market value as determined by a valuer.
Thirdly, certain provisions in a site agreement that provided for the payment of rent and other charges after the death of a resident, but prohibited the use of the home, were held by VCAT to be harsh, if not unconscionable.[6] Accordingly, VCAT required a clause to be added to the site agreement so that the home could be used after the death of the resident, with the consent of the operator, which consent could not be unreasonably withheld.[7]
The operator is expected to lodge an appeal. We will monitor this space and provide further commentary should an appeal be lodged.
Whilst this decision is primarily relevant for land lease communities in Victoria, it serves as a reminder for retirement village operators in WA of what can happen if their residence contracts do not meet the statutory requirements.
The disclosure statement prescribes that where the resident is entitled to the capital gain, the refund entitlement and exit fee must be calculated based on an assumed 2% per annum capital growth on the ingoing payment.[10] There is also a mandatory note that states:
The value of residential premises in a retirement village will increase and decrease over time and be influenced by a range of circumstances including the national and international economy. The values used in this example are illustrative only and do not guarantee an entitlement to a specific refund amount. The 2% per annum increase is an arbitrary figure chosen to enable comparison between villages
Under the Retirement Villages Amendment Act the disclosure statement will be replaced with a new form known as a prospective resident information statement[11] which document has not yet been published. However, it is expected to also contain a requirement to include the amount of the estimated refund entitlement at the end of 1 year, 2 years, 5 years and 10 years and include a warning to the effect that the amounts are estimates only because the actual amount will not be known until the next ingoing contribution is paid or there is a mandatory buy back at the amount agreed or determined by a Valuer.[12]
The Australian Consumer Law[14] unfair contract terms regime applies to retirement village residence contracts because they are standard form consumer contracts. Three criteria must be satisfied for a term to be considered unfair.[15] The term must:
An exit fee is not necessarily unfair or unconscionable. To determine if an exit fee is unfair, a court will consider the extent to which the term is transparent, the contract as a whole, and any other matters it considers relevant.[16] If a term of a contract is “unfair”, it may be declared void by the court, which means neither party will be able to enforce the term.
Charging an exit fee in WA retirement villages is acceptable if disclosures meet the statutory requirements and the exit fee's calculation and purpose are clearly and plainly stated.
There is an ongoing focus across Australia on strengthening consumer protections and ensuring that business models in the seniors housing sector comply with relevant legislative frameworks. This decision highlights the importance of reviewing template contract documents and preparing for upcoming requirements in WA under the Retirement Villages Amendment Act.
Upon publication of the amended Retirement Villages Regulations by the WA Government, which are expected later in 2025, we will provide further updates and guidance to assist you with your compliance obligations.
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[1] Dowling v Lifestyle Management 2 Pty Ltd (Residential Tenancies) [2025] VCAT 590 (Dowling)
[2] Residential Tenancies Act 1997 (Vic) (RT Act), section 206ZZG – Site owner cannot ask for a fee for giving consent.
[3] RT Act, section 206S(1)(b).
[4] RT Act, section 206S(1)(c).
[5] Dowling [132].
[6] Ibid [162]
[7] Ibid [180-182].
[8] Retirement Villages Act 1992 (WA), section 13.
[9] Retirement Villages Regulations 1992 (WA), Schedule 1, Form 1.
[10] Retirement Villages Regulations 1992 (WA), (RV Regulations) Schedule 1, Form 1 ‘Instructions for completing examples of Estimated refund Entitlements in Annexure B’, Instruction 2.
[11] Retirement Villages Amendment Act 2024 (WA) (Retirement Villages Amendment Act), section 13(2)(aa).
[12] RV Amendment Act, section 37.
[13] RV Regulation 7F(1), Item 2.
[14] Competition and Consumer Act 2010 (Cth), Schedule 2 comprises the Australian Consumer Law (ACL).
[15] Section 24(1) ACL.
[16] Section 24(2) ACL.