Long term leases

Park and Village Service's submission to the NSW Department of Planning

Quicklinks

  1. Introduction
  2. The current position
  3. Security of tenure
  4. Affordibility
  5. Failure to register long term leases
  6. Need for better consumer information to accompany long term leases
  7. Comparisons with the USA
  8. Appendix
  9. References

 

Introduction

The Park and Village Service (PAVS) operates under the auspice of the Combined Pensioners and Superannuants Association of NSW, with funding administered by the Department of Fair Trading. It is funded as a caravan park and manufactured home estate resourcing body within the Tenants’ Advice and Advocacy Program.

The Department of Planning has asked PAVS to comment on the use of long term leases in caravan parks and manufactured home estates. PAVS understands that the Caravan and Camping Industry Association (CCIA) have also been asked to comment and that the CCIA are interested in the use of long term leases that have fixed terms of 20 years and beyond.

It has been proposed that long term leases may be beneficial to both park operators and residents. The primary benefit to residents is reputed to be improved security of tenure. In response, PAVS would submit that there a range of issues that would need to be addressed before long term leases are introduced and that a range of other reforms are required to improve security of tenure for park residents. Some of the issues that need to be addressed in relation to long term lease have been dealt with in the submission from the Tenants’ Union of NSW. PAVS endorses the comments made in that submission.

The current position

It is already possible to have a lease with a fixed term in excess of 3 years and up to 20 years. However, they are not widely used in the caravan park and manufactured home estate (MHE) industry and it is common practice for park operators to offer fixed terms ranging from 1 week to 3 years.

The CCIA have argued that the small number of long term leases currently in place are due to rent control measures introduced by the Residential Parks Act (RP Act) and that while these measures are in place there will be a reluctance to offer long term leases. [1] PAVS is unaware of any rent control measures in the RP Act and would oppose any changes to the RP Act that would make it easier for park owners to increase rents.

Security of tenure

It has been proposed that long term leases will improve security of tenure, as both parties will have certainty during the term of the lease. This view is partly based on the belief that parties will enter into long term leases. It is not possible to force people to contract into long term leases. It may be that this issue could be partly addressed as a condition of development consent for new parks but this does not assist current park residents.

Under the RP Act a park owner can serve a notice of termination during the fixed term on several grounds where the resident is not at fault and is entitled to seek orders for possession of the residential site if the resident does not vacate in accordance with the notice. For example,

A park owner can serve a notice of termination if the residential premises are, otherwise than as a result of a breach of the agreement, destroyed or rendered wholly or partly uninhabitable or cease to be lawfully usable for the purpose of a residence or are appropriated or acquired by any authority by compulsory process: s104 of the RP Act. For example, the site is severely damaged by flood or landslip.

A park owner can serve a notice of termination of the agreement on the grounds of hardship: s 119 of the RP Act. For example, the park owner falls into severe financial difficulty and is unable to keep the park operating.

An agreement can also terminate if a person having superior title to that of the park owner becomes entitled to possession of the residential premises: s95 (c) of the RP Act. For example, a lease for the land on which the park is sited expires.

It is unlikely that the RP Act can be amended to accommodate changes to these particular provisions in the event that access to long term leases is made easier.

Long term leases will not protect residents from acts of serious misconduct by park owners and managers that can cause a resident to leave a park. Anecdotal evidence suggests that this is not an uncommon outcome and was one of the methods used to help clear the park of residents at Banora Point Caravan Park.

Long term leases will not prohibit a park owner from lodging a development application during the term of the lease. Once a development application is lodged, it is extremely hard for residents to sell their dwelling on-site should they need to move from a park into more appropriate accommodation, such as when their health deteriorates. The value of the dwelling can also drop dramatically in such circumstances.

In the past some developers have bought land that is unsuitable for residential or commercial development at the time of purchase and then used the land for a caravan park or a manufactured home estate (MHE). The real long term intention, however, is to redevelop the land for other uses once the land value has exceeded the value of the park or the estate. In that event, the operation of a caravan park or MHE on the land is just an interim use. As the objectives of this investment strategy can take many years to achieve, it may be that the push for long term leases is simply an expedient device to shield the real intentions of developers and those sections of the industry that are after the best capital return on their land that they can obtain.

PAVS would also question the value of long term leases if they were not offered to every resident in a residential park. If only a few residents in a park have them, a park owner or manager can easily reduce services and put pressure on those residents to leave a park once the other resident without long term leases have left a park. A substantial loss of services occurred prior to the closure of Lansdowne, Casa Paloma, and Sundowner Caravan Parks.

Ultimately, the issue of security of tenure may be better addressed by a package of reforms including a new State Environmental Planning Policy (SEPP) that would prohibit the redevelopment of caravan parks and MHEs unless suitable alternative affordable housing is readily available in the vicinity. The provisions of the Gosford Local Environmental Policy 443 that apply to certain parks in the Gosford area could be included in the proposed SEPP: see excerpt in the Appendix.

Affordability

One of the main issues for park residents is affordability. Residents who enter into long term leases need certainty about their long term rental costs so that they can determine whether they can afford this style of living during the term of the lease. As indicated above, the CCIA see the current rent provisions as too restrictive. Making rent provisions less restrictive for park owners would make it easier to increase rents and ultimately make rents less affordable and predictable in the long term. The CCIA’s position on the current rent provisions runs contrary to their claim’s about promoting affordable housing. It is PAVS view that rent increase reforms are required to make rents more affordable, especially if residents are to sign up for long term leases. 

It is true that entry costs for residential parks are low when compared to purchasing a more traditional form of housing. However, more research needs to be undertaken on the long term costs of residential park living. Research by Mowbray and Stubbs in 1996 indicated that the total cost of purchasing a manufactured home over a twenty year period was in many cases higher than purchasing a free standing home in most of the scenarios that they modeled. This is particularly so where a resident borrows money to purchase a manufactured home and then pays interest at a higher rate than a normal home loan. In some instances the total cost can constitute a poverty trap. The total cost for this type of housing were also deemed to be higher even if a resident could have borrowed money at the home lending rate (which they currently cant’) [2] & [3].

Even with leases in excess of 20 years, PAVS is skeptical that reputable home loan lenders will be willing to offer affordable mortgage products to residential park residents. Residents don’t own the land that their dwellings are on. The dwellings are prone to high rates of depreciation and not built to the same rigorous standard as more traditional homes. Additionally, the value that can be associated with a long term lease over a site in a caravan park or MHE is uncertain and cannot be linked to the value that derives from long term commercial leases that offer superior security of tenure and can provide greater flexibility over the of use the land during the lease. The risks to the lender are likely to be too high to attract a low interest rate. Independent research is required to look at:

  • whether reputable lenders would be willing to be involved,
  • the long term affordability of mortgage products in combination with rising site fees and other costs,
  • what type of security would be required,
  • whether the term of the loan could be tailored to the term of the lease or will it be determined otherwise,
  • what happens to the mortgage if the dwelling has to be relocated or the lease is terminated, and
  • the likely problems for residents if they default.

Whilst the long term costs would be less for someone who can afford to buy a manufactured home outright, it is likely that the outright purchase would be funded by the sale of an existing home. Relocating to a less secure form of housing is not a good outcome for such people and has wider economic and social implications for the wider community and government. For instance, site fees are likely to be subsidised by rent assistance from Centrelink.

PAVS believes that long term leases are more likely to be offered to potential residents of new parks where a new dwelling is being sold by the park owner (who is likely to add a significant mark-up onto the manufacturer’s original price), rather than to existing residents or people purchasing older homes from residents. This could have the undesirable effect of making the higher end of the market more attractive at the expense of the lower end of the market where the more affordable homes are.

 Failure to register long term leases

Leases that have a fixed term in excess of 3 years are required to be in registrable form. It is the park owner’s responsibility to provide the correct lease and register the lease at the Land and Property Information Service at the Department of Lands. PAVS is aware of situations where residents have leases that are not in the correct form and have not been registered. This leaves residents vulnerable to subsequent purchasers of caravan parks and MHEs that are on Torrens title land. Legislative change is required to ensure that residents are not disadvantaged when this happens.

Need for better consumer information to accompany long term leases

People who enter into long term leases will need comprehensive information about their legal rights and the long term financial implications of this style of living. PAVS is unaware of anywhere where potential park residents can obtain informative financial advice about park living. The absence of such information increases the likelihood of vulnerable people making inappropriate housing choices. Some sections of the caravan park and manufactured home estate industry have advertising that encourages homeowners to sell their homes in order to purchase a manufactured home on a caravan park or MHE and gain access to the rest of the capital value of their home. The advertising promotes living in a caravan park or MHE as a cheaper option than other forms of retirement living. Whilst the industry is free to target who it wants with its advertising, it is not desirable for people who have secure housing to change to another form of housing that has inferior security of tenure and where the dwelling is susceptible to high rates of depreciation.

Residents would also need to be warned that there could be serious financial implications for people who need to break their lease early. Residents who break leases early are liable for rental costs until a new resident is found or the lease ends. Residents who break leases will need to sell their dwellings. It is not uncommon for dwellings in caravan parks and MHE to be on the market for months, sometimes years.

Comparisons with the USA

The CCIA argue that living in manufactured homes has become a creditable housing option in the USA and that they appeal to a wider social mix there than in Australia where older persons occupy the majority of such homes. [4] However, different legal systems (including forms of rent control) and socio-economic factors operate in the USA. Accordingly, the issue of long term leases should be examined in light of local factors and not those that apply to the USA.

Appendix:

Taken from Gosford Local Environmental Plan No 443

(4) Notwithstanding any other provision of this Ordinance, the

consent authority must not grant consent to a development

application to which this clause applies unless it has taken into

account the following matters in deciding whether or not to

grant consent to the application:

            (a) whether the proposed development is likely to reduce

            the availability of low-cost accommodation on the land

            to which the development application relates,

            (b) whether there is sufficient available comparable

            accommodation in the Gosford local government area

            to satisfy demand for such accommodation in that local

            government area,

            (c) whether the development, if carried out, is likely to

            cause adverse social and economic effects on the people

            who live on the land the subject of the application (if

            any), or on the general community,

            (d) whether adequate arrangements have been made to assist people            who live on the land the subject of the application (if any), to find    alternative comparable accommodation in the Gosford local government    area,

            (e) whether the cumulative impact of the loss of low-cost

            accommodation in the Gosford local government area

            will result in a significant reduction in the stock of that

            accommodation.

(5) The consent authority must not grant consent to a

development application to which this clause applies unless

satisfied that accommodation is available in the Gosford local

government area that:

            (a) is sufficient to accommodate the maximum number of

            people capable of being accommodated by existing

            development on the land the subject of the development

            application at any point in the 12 months preceding the

            commencement of Gosford Local Environmental Plan

            No 443, and

            (b) is comparable to the accommodation that was provided on that land in      relation land in relation to price, facilities, services and type of tenure.

 

References

1. Gosford City Council (2009) Issues Paper on Residential Parks and Housing Continuum.

2. Mowbray, M & Stubbs, J (1996) ‘Manufactured home estates: Extending options or benchmarking cities? In Urban Policy and Research, Vol.14, No. 2 pgs.129 -143

3. In Wygiren Pty Limited v Kiama Municipal Council [2008] NSWLEC 56 the Land & Environment Court accepted similar evidence.

4. Gosford City Council (2O09) Issues Paper on Residential Parks and Housing Continuum

 

 

powered-by-joomla
built-by-energetica