Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Marsh v Pines Resort Management Pty Ltd [2021] NSWCATCD 127 Hearing dates: 30 June 2021 Date of orders: 6 September 2021 Decision date: 06 September 2021 Jurisdiction: Consumer and Commercial Division Before: K Ross, Senior Member Decision: (1) The claimed increase in site fees of $12.50 per week is excessive. (2) The site fees for each affected home owner must not exceed $9.00 per week from 20 January 2021. Catchwords: RESIDENTIAL (LAND LEASE) COMMUNITIES — Rent increase — Outgoings and operating expenses Legislation Cited: Residential (Land Lease) Communities Act 2013 (NSW) Cases Cited: Nil Texts Cited: Nil Category: Principal judgment Parties: Karlee Marsh (Applicant) Pines Resort management Pty Ltd (Respondnet) Representation: Applicant (Self-represented) L Toussaint (Respondent) File Number(s): RC 21/04607 Publication restriction: Nil REASONS FOR DECISION Application 1. By notice dated 20 November 2020 given to each of the home owners in the respondent's residential land lease community, the respondent gave notice of an intended increase in site fees of $25.00 per fortnight for each site, to commence from 20 January 2021. The home owners who are participants in these proceedings objected to the increase. Mediation was attempted but was unsuccessful and this application was lodged pursuant to s 71 of the Act. The applicants ("home owners") seek an order that the rent increase is excessive. The respondent ("operator") opposes the order sought. 2. The home owners also commenced proceedings seeking an order that the site fee increase be suspended until determination of this application, and on 11 March 2021 an order was made to that effect by consent. The law 1. Section 67 of the Residential (Land Lease) Communities Act 2013 ("the Act") provides as follows: 67 Increase of site fees by notice (1) This section applies to a site agreement that provides for the increase of the site fees by notice (otherwise than by a fixed method). (2) An increase in the site fees is not payable unless the fees are increased in accordance with this section. (3) The site fees must not be increased except by notice in writing given to all the home owners in the same community at the same time under site agreements to which this section applies. (4) The notice must— (a) specify the amount of the increased site fees, and (b) specify the day (the "effective day") on and from which the increased site fees are payable, and (c) include an explanation for the increase, and (d) include such other information as may be prescribed by the regulations, and (e) be in the approved form (if any). (5) The day specified as the effective day must not be earlier than 60 days after the day on which the notice was given. (6) Site fees must not be increased more than once in any 12-month period under this section. This is calculated by reference to the day from which the increased site fees are payable. (7) Increases under this section in site fees payable by home owners in the same community under site agreements to which this section applies must take effect on the same day (and not on different days). (8) A notice under this section may be cancelled. (9) A later notice may provide for a lesser increase than that specified in an earlier notice under this section. A later notice has effect instead of the earlier notice and takes effect from the date on which the earlier notice was to take effect. (10) If the site fees payable under a site agreement are increased under this section, the terms of the agreement are varied accordingly. (11) If a person becomes a home owner after a notice has been given under this section to other home owners in the community but before the date the increase takes effect— (a) the operator must notify the home owner of the notice and its contents and effect, and (b) the increase applies as if the notice had been given to the home owner at the same time as it was given to other home owners. 1. The orders which the Tribunal may make are set out in s 73 of the Act: 73 Orders as to excessive increases in site fees (1) The Tribunal may, on application under section 71 or 72, make any of the following orders— (a) an order declaring that an increase in site fees is excessive, (b) an order reducing the amount of the increase by a specified amount, (c) an order setting aside the increase, (d) an order that the site fees must not exceed a specified amount or specified amounts, either— (i) from a specified day, not being earlier than the day from which the increased site fees were payable, or (ii) during a specified period, (e) an order confirming the increase on the conditions (if any) that the Tribunal considers appropriate, (f) any ancillary order that the Tribunal, in the circumstances, thinks appropriate. (2) The Tribunal may make orders applying to individual participating home owners, groups of participating home owners or all participating home owners. (3) An order applies to all affected home owners in the community (other than those who opt out), unless the Tribunal is satisfied there is a strong reason for making separate orders for different home owners or groups of home owners. (4) The Tribunal cannot make an order that would result in an increase lower than that needed to cover any actual or projected increase (established to the satisfaction of the Tribunal) in the outgoings and operating expenses for the community since the previous increase (if any) in site fees for the community. 1. The matters for consideration by the Tribunal are set out in s 74 of the Act: 74 Matters to be considered about excessive increases (1) The Tribunal may have regard to any or all of the following factors when deciding whether to make an order under section 73— (a) the frequency and amount of past increases in site fees for the community, (b) any actual or projected increase in the outgoings and operating expenses for the community as provided by the operator since the previous increase (if any) in site fees for the community, (c) any repairs or improvements to the community— (i) carried out by the operator since the previous increase (if any), or (ii) planned by the operator for the period covered by the increase being reviewed, (d) the general condition of the community including its common areas, (e) the range and average level of site fees within the community, (f) the value of the land comprising the community, as determined by the Valuer-General, (g) the value of any improvements to the community (including common areas) paid for or carried out by home owners, (h) any explanation for the increase provided by the operator by notice in writing to the affected home owners, (i) variations in the Consumer Price Index (All Groups Index) for Sydney, (j) whether the increase is fair and equitable in the operation of the community, (k) any other matters prescribed by the regulations. (2) The regulations may require the Tribunal to disregard any specified matters (not being a matter referred to in subsection (1)), in any specified circumstances, when deciding whether to make an order under section 73. Jurisdiction 1. The Tribunal is satisfied that it has jurisdiction to hear and determine this dispute. Notices were given to all home owners at the same time as required by s 67 (3). The notices complied with the provisions of s 67 (4). There has been no other site fee increase in the relevant 12 month period [s 67(6)]. The parties attended mediation as required by s 69 but were unable to come to an agreement, and these proceedings were commenced within time. Late service of the respondent's supporting documentation 1. The directions made by the Tribunal on 11 March 2021 required the operator to provide the documents on which it intended to rely to the Tribunal and the home owners by 1 April 2021. The home owners complained that whilst the operator's submissions were received by that date, the supporting documents (comprising 1179 pages of invoices and the like) were received one week late (on or about 7 April 2021). The applicants sought that the Tribunal decline to accept the documents. 2. The Tribunal considered the submission made but determined that, as the delay was relatively short, and as the applicants had had the documents for more than two and a half months, the documents would be received. The Tribunal took a short adjournment to enable the applicant's representative to prepare, and the documents were then considered during the hearing, with the applicant's representative taking the opportunity to question the respondent's representatives about them. Matters to be considered under s 74 1. Taking each of the matters for consideration in s 74: (a) The frequency and amount of past increases in site fees for the community 1. Both parties gave evidence that recent fee increases, in December 2017, January 2019 and January 2020 were in accordance with the CPI. The home owners noted that the site fees requested by the operator in October 2017 were found by the Tribunal to be excessive, and the CPI increase was that set by the Tribunal on that occasion. (b) Any actual or projected increase in the outgoings and operating expenses for the community as provided by the operator since the previous increase (if any) in site fees for the community 1. The operator relies upon an increase in its outgoings and operating expenses as one of the major reasons for the current site fee increase. It says that its operating expenses have increased by $919,361.00. The home owners submit that certain of the items relied upon are of a capital nature and cannot be regarded as falling within the compass of "outgoings and operating expenses". 2. The operator gave evidence that it had been required by Council to upgrade the sewerage infrastructure in the park, and had been charged $748,417.50 as a s64 contribution. It argued that this was an expense of operating the park, and therefore an outgoing which it had incurred. 3. In addition, the operator claimed $128,211.60 for upgrading the pumping station. What is meant by outgoings and operating expenses? 1. The home owners submit that capital costs are not recoverable in site fee increases. There is no such provision in the Act. The differentiation is between outgoings and operating expenses, and repairs and improvements to the community. 2. I accept the home owners' submission that outgoings and operating expenses are expenses of a recurring nature. If these expenses included the cost of repairs and improvements made to the community, s 74 (b) would have no work to do. I am satisfied that this reading is consistent with the rest of the Act, and in particular s 73 (4), which provides that the Tribunal cannot make an order that would result in an increase lower than that needed to cover any actual or projected increase (established to the satisfaction of the Tribunal) in the outgoings and operating expenses for the community since the previous increase (if any) in site fees for the community. This ensures that the operator can recoup those increases in the period directly after they have been incurred. Repairs and improvements are not included in the s 73 (4) provision, as whilst it is reasonable for them to be taken into account by the Tribunal when considering whether the increase is excessive, it would not be expected that the operator would recoup those immediately. 3. I am satisfied that both the cost of upgrading the pumping station and the s 64 contribution should be considered to be repairs and improvements rather than outgoings and operating expenses. The s 64 charge is a cost of the development (the upgrading of the sewerage facilities). The upgrading of the pumping station is an improvement to prevent what would otherwise be ongoing and expensive repairs. 4. Excluding these two charges reduces the increase in outgoings and operating expenses to $42,731.90. 5. The home owners argued that a number of the other invoices claimed were for repairs and improvements and these expenses should not be considered as part of the operator's outgoings and operating expenses. However, I do not propose to deal with every one of the invoices produced by the respondent. The two invoices referred to above are the two most significant. It is inconsistent with the Tribunal's guiding principle to spend many hours identifying each contested invoice (from both the current year and the previous year). I am satisfied that the effect on the outcome would not warrant the time which would be required. 6. The home owners submit that the respondent should be unable to rely upon any of the invoices produced because they include invoices for expenses which are not outgoings and operating expenses. Again, I do not accept that submission in this particular case. The evidence produced satisfies me to the requisite standard. (c) Any repairs or improvements to the community: (i) carried out by the operator since the previous increase (if any), or (ii) planned by the operator for the period covered by the increase being reviewed 1. The operator says that in addition to the s 64 contribution, it spent $286,000 in relation to the sewerage works. Thus the operator spent a total of $1,162,628.10 ($748,417.50 + $286,000 + $128,211.60) on the sewerage and related works. 2. The home owners argued that these were not improvements to the community, but I do not accept that submission. The sewerage facilities have been renewed and upgraded. That amounts to an improvement to the community, and the Tribunal should take that into account when considering the site fee increase. 3. However I accept that whether the sewerage reticulation system is an onsite system or is connected to the Council's system may not directly impact the amenity of home owners. There was no evidence supplied by either party in respect of the effect of the upgrade on amenity. 4. The operator also says that it carried out repairs to the road and storm water infrastructure on 1st Avenue, repairs to the off leash dog park, repairs to 5 car parking spaces, and repairs to the street lighting. 5. The home owners do not dispute that these works were carried out. (d) The general condition of the community including its common areas 1. The operator submits that the community is well maintained and continually improving, and provides a series of photographs to support this submission. The home owners dispute that claim, and also rely on photos together with an audit report. 2. I am satisfied that whilst the community is attractive, and appears to be adequately maintained, there is evidence of significant deterioration of the road surfaces, including in the photos relied upon by the operator. (e) The range and average level of site fees within the community 1. There appears to be no dispute that the site fees within the community range between $116.06 and $165.00 per week. The operator has provided a table of site fees in surrounding communities and submits that the range of site fees in this community is less than that in surrounding communities. 2. The comparison of site fees between communities is not relevant to the consideration under subsection (e). (f) The value of the land comprising the community, as determined by the Valuer-General 1. Neither party provided any evidence of the value of the land. (g) The value of any improvements to the community (including common areas) paid for or carried out by home owners 1. The operator submitted that there are no improvements to common areas paid for by residents. The residents submitted that they keep the pool clear of debris and one resident painted the BBQ area, but there is no evidence as to whether this was paid for by residents. 2. Residents are responsible for the maintenance of their own homes. (h) Any explanation for the increase provided by the operator by notice in writing to the affected home owners, 1. In the site fee increase notice, the operator gave the following explanation: We have assessed the following issues as they impact on the community since the previous increase: Improvement to community infrastructure and amenity General maintenance and condition of the community Actual increases in the outgoings and operating expenses for the community including: Community utility expenses Repairs and maintenance Statutory fees These costs as well as the commercial reasoning associated with these issues impact directly upon the operation and sustainability of the community. The site fee increase of $25.00 is required to ensure the impacyts of these issues are accounted for and help to maintain the continues viability of the community. 1. These issues have been considered above. (i) Variations in the Consumer Price Index (All Groups Index) for Sydney, 1. The CPI varied by 0.3%. The operator submits that the variation is not relevant because it is a consumer based index, and the expenses associated with the operation of the community have increased by more than that amount. 2. However it is relevant to consider that a $12.50 increase is an increase of between 7.5% and 10.7%, at a time when CPI is running at 0.3%. (j) Whether the increase is fair and equitable in the operation of the community, 1. The operator submits that it has spent $1,668,475 in the community since the last site fee increase. It calculated that its operating expenses had increased by an amount equivalent to $147.33 per site per week. However, the Tribunal is satisfied that in fact the increase in operating expenses equates to $6.85 per site per week ($42,731.90 divided by 52 divided by 120 (being the number of sites in the community). In addition, the Tribunal takes into account that the operator has incurred the costs in upgrading the sewerage system and the pump house. 2. The operator sought to have the Tribunal make an order that the site fee increase must not exceed $147.33 per week. This claim is misguided. The operator cannot be entitled to an increase of more than that sought in the rent increase notice. (k) Any other matters prescribed by the regulations. 1. There are no other matters prescribed by the regulations. Decision 1. Section 73 (4) of the Act provides that the Tribunal cannot make an order that would result in an increase lower than that needed to cover any actual or projected increase (established to the satisfaction of the Tribunal) in the outgoings and operating expenses for the community since the previous increase (if any) in site fees for the community. As I am satisfied that those costs increased by an amount of $6.85 per week, I cannot make an order for less than that amount. 2. I must also consider that the operator has incurred substantial costs in the upgrading of the sewerage and pump house. On the other hand, the roads in the park are in need of maintenance and there appear to be no immediate plans to attend to that issue. 3. I note that the fact that home owners may not have received an increase in their Centrelink benefits is not a matter which I can take into account. However, I take into account that an increase of $12.50 per week is an increase of between 7.5% and 10.7%. 4. I am satisfied that balancing all of these matters, the increase of $12.50 per week is excessive. 5. I have a discretion as to the order which I make. I will allow an increase of $9.00 per week, which is the amount of increase in the operator's outgoings and expenses, and an allowance for the sewerage upgrade. Orders 1. The Tribunal makes the following orders: 1. The claimed increase in site fees of $12.50 per week is excessive. 2. The site fees for each affected home owner must not exceed $9.00 per week from 20 January 2021. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 February 2022