Unlike most other States, Victoria does not have a stand-alone piece of legislation governing land lease communities and caravan parks.

Instead, the Residential Tenancies Act 1997 (VIC) (RTA) provides the legislative framework for all residential tenancy arrangements in Victoria, including in caravan parks and land lease communities (called ‘residential parks’ in Victoria).

On 6 September 2018 the Victorian Parliament passed the Residential Tenancies Amendment Act 2018 making sweeping reforms to the RTA, a significant number of which directly impact owners and operators of caravan and residential parks in Victoria.

The detail and roll out of the reforms will occur progressively and the intention is it will be completed by 1 July 2020.

Next steps

A summary of just a few of the changes impacting operators of residential parks and caravan parks in Victoria is below. A full list can be accessed at https://engage.vic.gov.au/fairersaferhousing.

We will keep our clients and readers updated on the roll out and the details of the changes when they come into force.

If you are an owner/operator of a residential park in Victoria, you will need to consider how your operations and proforma standard form site agreement, park rules, disclosure material and home sale agreements may need to be amended to comply with the RTA as amendments are rolled out.

Please feel free to get in touch with us to discuss this.

Some of the key changes owners/operators should be aware of

1. New disclosure requirements—There will be a number of new disclosure obligations on park owners including a requirement to (before entering into a site agreement) disclose to prospective residents:

• more information about any exit fees / deferred management fees charged (details of the new disclosure requirements will be prescribed in regulations, but the expectation is they will be similar or the same as that required for retirement villages);

• if the park operator does not own the freehold of the park land, the nature of the interest held and any limitations on the park operator’s right to grant interests in the land to residents (e.g. if you own the park land in a trust structure and lease it to an operations entity, you will need to disclose that you cannot grant a site agreement for a term longer than the term of the head-lease to your operations entity (noting options in head-leases are discounted); and

• any current proposal to sell the park.

2. Prohibited terms—As is already the case in QLD, Regulations will be passed listing what the RTA will deem “prohibited terms” for site agreements. Once the Regulations are passed it will be an offence to include a “prohibited term” in a site agreement. Obviously, the devil will be in the detail here. Operators will need to be ready to change their proforma site agreements when the new Regulations come into force.

3. Rent increases—Rent under site agreements will not be able to be increased at intervals of less than 12 months. Site agreements will be able to specify rent increases are either by a fixed amount (according to a specified method of calculation (e.g. fixed %) or by a non-fixed amount (e.g. market review). If a fixed amount is used, the operator must give 28 days’ notice of the increase in the prescribed form. Fixed rent increases cannot be subject to rent review by Consumer Affairs Victoria. Non-fixed rent increases will be subject to rent review by Consumer Affairs Victoria.

4. Removal of termination right—Park operators will no longer be able to terminate periodic site agreements for ‘no specified reason’. Park operators will be able to issue a notice to vacate at the end of a specified period of occupancy under a residency right, or end of a fixed term site agreement.

5. Compulsory compensation—If a park is closed, the park operator (who owns the park) will have to pay compensation determined by VCAT to residents who own fixed dwellings in the park. The amount of compensation payable will cover reasonable relocation costs for the resident’s dwelling or compensation for loss of residency if the dwelling is not being relocated.

6. No commission where not effective cause of sale—A park operator who enters into an agreement to sell a moveable dwelling on behalf of a resident must not charge a commission for the sale unless the operator is the effective cause of the sale, and the buyer is not the operator or a related party of the operator.

7. New maintenance and repair obligations—There are a suite of new provisions placing specific maintenance and repair obligations on the park operator (in relation to communal facilities, sites and fixtures on sites owned by the park operator) and also on the site tenants in respect to their dwelling (including to rectify defects before the sale of dwelling where the site agreement will be transferred to the buyer).

8. Restriction on repair obligations in park rules—Park operators will be prohibited from making park rules that require park residents to undertake significant works on a dwelling other than for reasons of reasonable cleanliness, safety or good repair.

Introduction

Most motel businesses are leasehold. The right for the motelier to operate from the motel is granted by the owner of the motel (landlord) to the motel business owner (as tenant) under a lease.

Most motel leases are granted for an initial term, with an option for the motelier (as tenant) to exercise an option to take the lease for one or more additional terms. An initial term of 5 to 10 years with three options for additional 5 year terms is typical (i.e. a total of 20 to 25 years including options).

It is critical for moteliers to understand when and how their lease options can be exercised. The last thing a motelier wants is to loose their business because they (or their on-site manager) simply forgot to exercise the lease option or the notice exercising the option was not given in accordance with the strict requirements of the lease.

We have had clients come to us on more than one occasion with this problem. Landlords will not always simply agree to waive the requirements of the lease. Someone else may be offering the landlord more rent or may just suit the landlord to end the tenancy.

Don’t get caught out.

Tips for exercising your option correctly

To avoid the real risk a failure to exercise a lease option correctly leads to the loss of a motel business, our tips are listed below. Please give us a call if you are concerned or want to discuss any aspect of your lease:

• Read the lease—almost all commercial leases will have strict requirements about when and how a lease option can be exercised by the tenant. If the lease is not clear, discuss it with your lawyer.

• Diarise the dates—Most leases will say an option can be exercised no earlier than 12 months before the end of the term and not later than three months before the end of the term. If you don’t send the notice between these dates, the landlord may be entitled to refuse to grant you a new lease. Diarise the dates and have someone else do the same so you don’t miss them. Part of our service to our clients to take the responsibility of diarising these dates. Ask your lawyer to do so if they don’t already.

• Don’t leave it until the last minute—Even if you intend to sell the business, you are better off exercising the option as soon as you are entitled to do so. Buyers and their banks will likely require you to do so in any event.

• Give the notice by a method allowed under the lease—Don’t do it over the phone. Follow the terms of the lease. If the lease says all notices must be sent by post to the PO Box address of the landlord specified in the lease, send the notice exercising the option by that method as well as by email to the landlord’s property manager (or whoever you typically communicate with when dealing with the landlord). Don’t just send an email unless the lease allows notices to be given by email and specifies the email address to which the email must be sent.

• Who signs the notice—If the lease says all notices must be formally signed by the tenant entity, make sure this occurs. If you are not sure what is required give your lawyer a quick call.

• The notice should be unequivocal and unconditional—Don’t send a notice saying you intend to exercise the option. Say you hereby give notice you exercise the option for the additional lease term staring on X and ending on Y and ask the landlord to acknowledge receipt and provide the new lease for you to sign.

• Follow up for acknowledgment of receipt—If the landlord does not acknowledge receipt of the notice, follow up and ask for written acknowledgement the lease option has been exercised. If the landlord blanks you (and this does occur) call your lawyer.

Introduction

Getting the consent of a body corporate committee to the sale of a management rights business can be stressful.

Far too often we see petty disputes over issues like “what amounts to reasonable evidence of a buyers financial standing” or “what gardening qualifications are necessary”. The disputes lead to delays, extra costs and unnecessary stress for all parties involved.

Ways for buyers to avoid the stress

If you discount the odd over-zealous committee member or body corporate lawyer—the process of getting committee consent should be straight forward.

Here is our list of the basic rules of thumb we suggest buyers follow.

• Deal with industry experts: Check your lawyer has the experience you are paying for. Ask them how many management rights transactions they have acted on in the last 12 months. An experienced adviser will make the process easier and less stressful;
• Sale contract: Understand the process and timeframes required under your sale contract. If you not sure, talk to you lawyer (you are paying them to keep you informed). Not knowing is stressful;
• Prepare for the committee interview: There are many examples of a typical list of the questions a committee will ask a buyer at an assignment interview (see the ARAMA website or ask your lawyer for examples). It is a good exercise for a buyer to run through a typical list well before the interview. Doing so will often inform a buyer about something they may have overlooked. At the very least, before the interview buyers should:
  • Due diligence: Do a thorough inspection of the complex and its facilities—and the equipment the resident manager has to maintain them;
  • Understand your obligations: Carefully read the caretaking and letting agreements and the list of duties the resident manager is required to perform. Talk to your lawyer about anything that is not clear. Talk to the seller about the expectations of the committee and residents.
  • Upskill where necessary: Consider if you have the requisite skills to operate the business. There are good industry run, short and relatively inexpensive courses for new and existing resident managers (visit the ARAMA and MRAS websites for more information on these). We recommend anyone buying management rights for the first time should attend one. They are informative and attending a course sends the right signals to the committee.

Sellers need to be proactive also

Sellers should also be proactive where they can be. Try to make sure the buyer is doing all of the above. Make sure your lawyer presents the request for approval to the sale to the committee:

• as soon as is possible after the contract is signed and the financial / due diligence conditions are satisfied; and
• that it is sent with all of the relevant information about the buyer (discuss this with your lawyer).

Communicate with the committee about any concerns they may have. Often a simple discussion with a committee member will solve the problem.

Introduction

If you are going to buy a management rights business in a holiday letting or serviced apartment strata scheme, you need to know:

• if the business is deemed to be a managed investment scheme (MIS) under the Corporations Act 2001;
• if it is an MIS, whether any exemptions from the MIS rules may apply to the strata scheme you will operate from; and
• what steps are required (if any) to take advantage of the exemptions.

The MIS regime is a technical area of law and the answers to the above questions are not always straight forward.

What is clear is that the consequences of operating a management rights business in breach of the MIS rules are severe. They include large fines, loss of your letting agent’s licence and an automatic right for unit owners to terminate their letting appointments.

Don’t buy a non-compliant management rights business

This note is a general summary only (for most people, drilling into the detail is a watching paint dry exercise).

Don’t get caught out by buying a non- compliant business.

If you are considering an acquisition of a holiday letting or serviced apartment management rights business – please give us a (no obligations) call to discuss your situation.

The best time for the call is before you sign a contract to buy management rights.

What is an MIS?

The MIS rules apply nationwide.

In summary, an MIS is a scheme with these features:

• people contribute money or other value to gain a right to benefits produced by the scheme;
• the contributions people make are pooled or used in a common enterprise to produce a benefit for scheme members; and
• the scheme members don’t have day to day control over the operation of the scheme.

When is a management rights business an MIS?

In the context of management rights:

• if people buy an investment unit in a strata scheme;
• put the unit in a letting pool with other units in the strata scheme; and
• give the day to day control over the unit to the resident manager,

then the resident manager (as the operator of the management rights business) operates a MIS.

What are the consequences of management rights business being an MIS?

Unless an exemption applies to the strata scheme (see below), the MIS rules require the operator of the management rights business to:

• register the scheme with ASIC;
• meet specified strict financial criteria;
• produce and comply with a scheme constitution and scheme compliance plan;
• hold an Australian Financial Services Licence; and
• give unit owners a product disclosure statement.

Complying with all of these things is onerous, time consuming and expensive. In the context of operating a management rights business it almost never warranted.

What strata schemes are not caught and what exemptions apply for strata schemes caught?

Operation of a management rights business in a strata scheme with permanent letting only is not considered a MIS.

Likewise, if there are 20 units or less in the letting pool, operation of a management rights business is exempt.

If you don’t fit within the above exemptions (or other more narrow exemptions we can discuss with you), you will need to rely on other relief available for management rights from full compliance with the MIS regime. To obtain the relief the list of conditions summarised below must met.

Conditions for general relief

The list does seem long and onerous, but we can work with you to set up a base set of disclosure documents and a letting appointment which will make compliance relatively painless. Again, please feel free to call to discuss this.

• You must have a licence under State law to manage real estate (this is just your letting agent’s licence)
• A product disclosure statement (PDS) in the correct form must be given to unit owners before they put their unit in the letting pool (we can prepare a base PDS you can then easily replicate)
• It must be voluntary for unit owners to put their unit in the letting pool
• You must hold all monies received in a trust account before distribution to unit owners and the trust account must be audited
• Both you and the unit owners must be able to withdraw from the scheme on 90 days’ notice
• The units must be able to be lawfully used as a permanent residence or if the town planning rules say the units must be used for short term letting only you need to apply for a specific exemption
• There are specific rules about funds for furniture, fittings and equipment and reporting to unit owners which must be observed
• Your letting appointments must include a provision which allows a majority of the unit owners to force you to sell the management rights for the complex
• Any rental guarantees you give to unit owners can’t apply after you sell the management rights

The law

For anyone who is interested in reading more detail about the law – in the first instance refer to ASIC Regulatory Guide 140

Introduction

We have set out in this note some things to consider before you enter into a contract to buy a motel or tourist park.

We hope they assist.

For more detailed information, please visit our website and download/print our comprehensive guide for buyers of motels and tourist parks and/or give us a call.

1. Engage Industry Specialists

Deal with industry professionals who have significant experience in the motel and tourist park industries (as applicable). Ask them about their experience and for examples of recent deals they have worked on.

An industry specialist should make the process of identifying and buying a park/motel less stressful, cost less and should mitigate your risk of buying a lemon.

Typically you will use:

• A real estate agent – to help you refine your search parameters, identify possible motels/parks, and find the right investment for you.
• An accountant – to assist you with structuring, checking the seller’s books and verifying the financial performance of the business.
• A finance broker – to identify and approach the right financiers to arrange for a loan.
• A lawyer – to negotiate the contract documents, carry out legal due diligence on the land, improvements and business and ensure those are conveyed to you free of encumbrances on settlement.

2. Choose the Right Park/Motel for You

Industry professional: agent.

Don’t rush your search.

Work out your key criteria for a motel or park before you start the search. Discuss these in detail with the agents, who will likely be your first point of contact with industry professionals.

A good experienced industry agent will:

• listen to you, advise you on whether your key criteria are workable and then work within the parameters you set;
• give you relevant and current information on the industry and the locations in which you wish to look (or refer you to resources with that information);
• show you a portfolio of parks/motels to consider (be wary of an agent showing you one or two parks/motels only, particularly where they don’t fit your criteria); and
• recommend other industry professionals; and
• assist with documenting a term sheet between you and the vendor.

3. Choose the Right Ownership Structure

Industry professionals: accountant and lawyer.

Consult your accountant and/or lawyer prior to signing a contract so you decide on the right entity or person to hold the legal and beneficial ownership of the land, improvements and business assets which comprise the park/motel.

The type of structure you use may be a company, a discretionary / family trust, a unit trust, a partnership, an individual or a combination of these.

• Your accountant and/or lawyer will:
  give you advice on structures that will minimise tax liabilities and maximise asset protection; and
• prepare the documents necessary to create the company / trust (as required).

4. Insist on a Term Sheet

Industry professionals: agent and lawyer.

It is always a good idea for you and the seller to agree and sign a simple one/two page document recording the key commercial terms of the deal—e.g. price, deposit, buyer conditions and time frames. This is often referred to as a “term sheet” or “heads of terms”.

Having a term sheet signed confirms both you and seller understand the terms of the deal agreed and can avoid lengthy and costly negotiations down the track when the formal contract documents are prepared and negotiated.

Good agents and lawyers know this and will encourage the parties to enter into a term sheet. Be wary of lawyers that quote you a fixed fee to prepare the contracts, but say they can’t control the level of negotiation that will be required and therefore have to charge hourly rates for negotiations (rather than a fixed fee). This sort of arrangement incentivises the lawyer to make agreeing the contract documents difficult.

5. Use the Right Finance Broker and Bank

Industry professional: finance broker.

Find a finance broker who specialises in the industry. They will be able to advise you on:

• the banks that are familiar with industry;
• the banks that offer the best finance packages to acquire motels or tourist parks;
• what finance you will be able to access; and
• the timeframes associated with and the costs of getting that finance.

If you go with a banker who is not familiar with the industry it will very likely cost you time and money and mean you can borrow less.

Make sure your broker knows the timeframe allowed under the contract to obtain a satisfactory finance approval and has your lawyers contact details. A good broker will work with the bank to ensure that timeframe is met.

6. Know What Qualifications / Licences and Service Contracts You Need

Industry professionals: agent and lawyer.

Talk to the agent, your lawyer and the seller at the outset about:

• what qualifications and/or licences and/or service and supply contracts you will need to operate the motel or tourist park; and
• the costs, obligations and timeframes associated with obtaining these.

Things you may need include:

• State government liquor licence;
• Local government food licence;
• State and or local government approval to operate;
• industry group or franchise memberships (eg. BIG4, Star rating); and
• service and supply contracts (eg. cleaning and linen contracts, booking software programs, rubbish collection, electricity, gas, water, telephone, email supply contract eftpos machine etc.).

Some of the licences and service / supply contracts held by the seller will be able to be transferred to you. Others will not be able to be transferred and you will need to apply for new ones.

Make sure:

• the contract is conditional on you obtaining key licences before completion (e.g. a liquor licence for motel that services alcohol);
• the contract requires the seller to transfer licences / service supply contracts it holds which you wish to take a transfer of;
• you understand the terms of any service or supply contract you are taking on;
• you get your applications for new licences in earlier enough to have them in place by settlement; and
• you contact suppliers and services providers earlier enough to have arrangements in place by settlement.

7. Employees are Key

Industry professional: lawyer.

Try to interview the seller’s employees prior to deciding whether you want to take them on – not only will this shed light on the employees themselves, you may also gain helpful insights into how the business was run by seller.

Make sure your lawyer checks the contract to ensure it doesn’t oblige you to take on the seller’s employees (if you don’t want to) and the seller pays out at least 70% of any entitlements owing to employees that will transfer to you.

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Background

On 10 November 2017, the Governor of Queensland granted assent to the Housing Legislation (Building Better Futures) Amendment Bill 2017 (Bill) which made changes, amongst other Acts, to the Manufactured Homes (Residential Parks) Act 2003 (Act).

See our article on the key amendments to the Act here.

Timeline

The Department of Housing and Public Works has now released its plans for further consultation and implementation of the amendments.

See the extract of the Department’s timeline on the amendments to the Act below:

Manufactured Homes (Residential Parks) Act 2003

Introduction

On 10 November 2017, the Governor of Queensland granted assent to the Housing Legislation (Building Better Futures) Amendment Bill 2017 (Bill). The Bill proposes amendments, amongst others Acts to the Manufactured Homes (Residential Parks) Act 2003 (Act).

The key amendments to the Act (subject to point 7 below) will commence on a day to be fixed by proclamation. This commencing day is yet to be confirmed by the QLD Parliament.

Objective

The Bill proposes to:

…increase transparency in the relationships between park owners and home owners, and
strengthen consumer protections to provide more security and confidence to home owners.
Reforms include a new, staged pre-contractual disclosure process; limitations on rent
Increases; prescribed behavioural standards for park owners, staff and home owners; and
other related measures.

Key Amendments

Outlined below are the key amendments to the Act:

1. Staged pre- contractual disclosure

A new two staged pre-conditional disclosure process obliging the park owner to provide home owners with:

• The initial disclosure documents (site rent information, park rules etc.) at least 21 days before entering into site agreements; and
• Other documents (in the approved form) at least 14 days before entering into site agreements.

The home owner can reduce these timeframes to 7 days by having their lawyer sign a waiver notice.

2. Cooling-off period

A new cooling-off period where:

• If the disclosure process has been complied with, a cooling-off period of 7 days applies; or
• If the disclosure process has not been complied with, a cooling-off period of 28 days applies,

from the date after the day the last person signs the site agreement.

A home owner may terminate the site agreement within the cooling-off period by giving notice to the park owner, and if the home owner has granted a person a security interest in the manufactured home, to that person.

3. Cooling-off period for the assignment of site agreements

A new 7-day cooling-off period for the assignment of site agreements, being 7 days after the park owner consents to the assignment. The period will increase to 28 days after consent if the park owner has not given the buyer the necessary disclosure documents.

The new proposed sections:

• require the seller must not complete the sale of a manufactured home unless the park owner has consented to the assignment of the site agreement and the buyer has been given the disclosure documents;
• outlines what happens when a buyer terminates the assignment agreement under the new cooling-off provisions – the seller must, within 14 days after the termination day, refund any amount received under the agreement to the buyer and ownership reverts to the seller; and
• makes void any part of a term in the sale agreement that seeks to exclude, change or restrict the operation of the above requirements.

4. Site rent increase

The site rent can only be increased if:

• the site agreement states the basis for working out the amount of increase;
• the increase is not worked out by using more than one basis at a time (ie. the site rent cannot increase by CPI and market review at the same time);
• there is no more than one increase per year;
• a general increase day has been nominated by the park owner for when site rents for all eligible sites in the park will be increased on the same basis;
• where increased by market value, the valuer engaged by the park owner has consulted with the home owners committee or, if there is no committee, with certain specified numbers of home owners at least 63 days before the next general increase;
• home owners are provided with a ‘general increase notice’ providing information about the proposed increase, the market valuation (in the case of market review) and how the home owner can dispute the increase at least 35 days before an increase.

A registered valuer must state in the market valuation ‘… any connection to, or agreement with, the park owner that may call into question the independence of the valuation’.

5. Site rent increase – special costs

Site increases that are necessary to cover ‘special costs’ the park owner has incurred or expects to incur, include:

• significant increased operational costs;
• the cost of significant repairs in relation to common areas or communal facilities that could not have been reasonably foreseen; and
• The cost of significant upgrades to common areas or communal facilities.

Park owners who propose to increase rent to cover special costs must issue a notice to home owners detailing the type of cost, the amount of the cost incurred and the amount of proposed increase in the site rent.

For a proposed upgrade to common areas or communal facilities, if 75% of home owners agree to the increase, all home owners are taken to have agreed.

If a home owner doesn’t agree to the increase, the park owner must first attempt to mediate the dispute before applying to the tribunal. There are specific criteria for the tribunal to consider when making a decision on the proposed increase.

6. Charges for utilities

Park owners are prohibited from charging home owner’s administrative or meter reading fees for the supply of utilities to a site.

7. Obligations about behaviour of park owners and home owners

New obligations on park owners and home owners with respect to behaviour (eg. Not to unreasonably interfere with peace, comfort or privacy, free from harassment and intimidation).

Park owners must provide home owners with a complete response to any correspondence with regards to a complaint within 21 days after it being received.

This provision commenced on assent on 10 November 2017.

8. Emergency plan

The park owner must ensure and maintain an emergency plan for the park (including emergency procedures, testing and implementing those procedures and providing information and training for home owners).

9. Dispute resolution

The introduction of a three-step dispute resolution process – negotiation between the parties, mediation before a mediator and then the parties may make an application to the Tribunal.

The definition of a residential park dispute, (formerly site agreement dispute) has been broadened to include disputes about matters relating to the day-to-day running or operation of a residential park (including a failure to communicate or cooperate in dealing with the matter) and disputes between home owners.

10. Prohibition on restricting visitors

Park owners must not prevent a visitor from visiting a home owner or other resident of the park who is providing health or community services.

Further, parks owners must not prevent a visitor from visiting a site or a common area without reasonable excuse (such as the visitor interfering with the reasonable peace, confirm or privacy of another home owner).

Subject to section 104 (point 7 above), these key amendments are yet to come into force.

For more information, please do not hesitate to contact the team at Amity Law.

Introduction

A new GST withholding regime was recently introduced requiring purchasers of new residential premises or potential residential land by subdivisions to withhold the GST on the contract price (excluding adjustments) and remit it directly to the ATO.

When Do the New Laws Come Into Effect?

The new laws took effect from 1 July 2018 and exclude sale contracts entered into before that date, provided the matter settles before 1 July 2020.

Why Have the New Laws Been Introduced?

The new laws aim to target what is known as illegal ‘pheonixing’ where developers collect GST on new properties and then dissolve their business and fail to remit the GST collected.

What Do the New Laws Mean for Purchasers?

1. The withholding regime only applies to purchasers who are not registered for GST and who are not purchasing for creditable purposes (ie. the regime will apply to most residential sales and only business to business transactions are excluded).

2. Purchasers must remit the GST withholding amount to the ATO on or before settlement.

3. Failure to withhold imposes a significant penalty– this will not apply if at settlement the purchaser hands to the vendor a bank cheque in favour of the Commissioner for the withholding amount.

What Do the New Laws Mean for Sellers?

1. The seller must notify the purchaser prior to settlement whether GST withholding is required (failure to do so is an offence and significant penalties will apply) – this can be done by way of a special condition in the sale contract.

2. The seller must confirm with the purchaser prior to settlement whether they are purchasing for a creditable purpose – if so the regime will not apply.

3. Sellers may be entitled to a tax credit for any amount withheld and paid to the ATO when calculating their net amount of GST payable in the seller’s business activity statement.
The new GST withholding regime presents a significant and fundamental change in the way that GST is collected. It is important that both purchasers and sellers are aware of their obligations and are prepared for the change.