The ABC has recently reported a story about Lifestyle Communities fee structure. In the interest of transparency, we’ve published our responses to the ABC’s questions below.

Lifestyle Communities takes its compliance obligations extremely seriously and has obtained legal advice throughout its 21 years to ensure it operates in accordance with relevant legislation, and its policies are consistent with other industry operators.

We are confident in our model and will defend it accordingly, however we fully respect the rights of homeowners to pursue the VCAT pathway as we believe this is the appropriate forum for resolution.

Q: Lifestyle says in its marketing material that it puts residents first. Can you explain the company’s reasoning behind the continued use of exit fees when residents we spoke to say they consider them a financial trap and states such as NSW have stopped their use and some competitors such as Stockland, Gemlife and Ingenia's new communities, don’t use them?

A: Lifestyle Communities does not make a cash surplus from the development of our communities. This ensures our purchase prices are more affordable and accessible to more homeowners. We sell our new homes for a lower upfront price which enables homeowners to free up as much equity as possible when downsizing from the family home. Capital growth over time then assists the homeowner to pay the Deferred Management Fees (DMF) upon exit. DMFs or Exit Fees are common throughout the land lease and retirement living sector. In Victoria there are more communities that charge a DMF than those that don’t, including Serenitas, Sanctuary Lifestyle and others. The DMF has been a core part of Lifestyle Communities’ affordable housing model for 21 years. It allows new home prices to be as low as possible, freeing up the release of equity for homeowners moving in. Unlike many property developers, Lifestyle does not make a cash surplus when developing a community. Effective profit is received upon resale, when the house is sold and DMF is collected. The DMF supports strong ongoing investment in communities that in turn drives strong capital growth for homeowners. The model supports a vested and mutual interest between Lifestyle Communities and homeowners to look after the community. It is win-win, demonstrated by average annualised capital growth of 9.5% over the past 10 years. We acknowledge that some new entrants to the land lease sector have different business models – some with and without DMFs. While these may be untested over time, we know that the market is big enough to sustain several different models and ultimately, customers will choose what works best for them. We also note that recent amendments to NSW legislation are designed to further regulate the use of exit fees in Site Agreements, not prohibit them. If the legislation were to change in Victoria, we would naturally need to review those changes and adjust our model accordingly.

Q: A number of residents we spoke to criticised the company’s policy of charging dead people rent. In one case it took the grieving family almost 18 months to sell the property. It is alleged Lifestyle agreed to sell but they were showing prospective buyers the new properties, while the estate was still paying rent. When the property was finally sold they also had to pay for the extra exit fee as the house. In another case it took a year and rent continued to be paid. How does Lifestyle reconcile this with a policy that says it puts residents first?

A: Lifestyle Communities’ processes are consistently customer first. In the scenario described, fees can be suspended immediately and accrued until the sale of a home, to be deducted from sale proceeds. No interest is charged on deferred fees. Lifestyle Communities has no incentive to delay the sale of a home and the team works closely to support and advise deceased estates to ensure the home is advertised for a reasonable price and will transact quickly to avoid ongoing fees. The average time to resell a home in Lifestyle Communities in FY24 was 63 days. It is important to note that the treatment of weekly site fees for the home to occupy the site is no different than other obligations that survive death – such as body corporate fees, council rates etc, and are required as costs continue to be incurred to maintain and manage the community for the benefit of all homeowners. Policies are in line with all relevant legislation and other operators. We understand this is a very emotional time for the surviving family members and we consistently review our compassionate policy to ensure it remains industry leading, both now and into the future.

Q: Do you think it is reasonable to charge dead people rent indefinitely when there is no limit on how long it might take to sell a home?

A: The average time to resell a home in Lifestyle Communities in FY24 was 63 days. Lifestyle Communities has no incentive to delay the sale of a home and works closely with owners and their families to expediently deliver the best result. There are of course outliers, and just like with any real estate transaction, realistic price expectations support the best outcomes. For clarity, the resale price is set by the homeowner, not Lifestyle Communities. Often deceased estates are waiting for probate. This is outside of our control and can often take an extended period. The option to request deferral of site fees applies in these circumstances. Our team works closely with families and estates to support the needs of their personal circumstances and recognise that every situation is unique.

Q: Your contracts say Lifestyle will help with the sale of properties. I’ve spoken to some residents who say Lifestyle didn’t help, in fact steered prospective residents away from these homes towards the new properties using incentives such as discounts and in one case furniture. Any comment?

A: Under our sales agreements, homeowners are free to appoint the Lifestyle Communities Resale team or their own real estate agent. Lifestyle Communities are the only land lease operator with a dedicated Resales team. The DMF model supports mutually aligned objectives for homeowners and Lifestyle Communities when it comes to resale, as it creates a partnership with the homeowners where we are equally vested in ensuring that the community is maintained to the highest level and this in turn supports the resale home prices. Over the last 10 years this has meant that our homeowners have achieved an average annual house price growth of 9.5%. A Head of Resales was employed in mid-2023, to grow focus and further support homeowners reselling their properties. Our Resales team is responsible for driving capital growth for homeowners and reducing days on market. The suggestion that Lifestyle has used or would use incentives to steer a sale towards a new home is simply not true. While it is not common, sometimes in new developments resales are selling up against new home sales. Any incentives or campaigns we run on new sales are completely independent and would run whether we have resales or not.

Q: Some residents describe Lifestyle as a financial trap, once you're in you can’t get out due to exit fees, particularly when some competitors don’t charge exit fees, and offer similar facilities at similar prices and rent. Does that concern you?

A: We categorically disagree with this proposition as it is not supported by the facts. In terms of the “financial trap” assertion, homeowners that exited Lifestyle Communities in FY23 achieved an average profit of $79,609 after paying the DMF. While it is possible to cherry pick one or two specific cases, we note that entry prices into Lifestyle Communities are substantially lower than competitors that do not have a DMF. It concerns us that this debate seems to focus only on one aspect of the fee structure but ignores other critical elements of a customer’s buying decision. Other factors are equally important, including the buy-in price, specific location, amenities, what’s covered under the site agreement, and the stage of completion. The single example we were provided by the Wollert Action Group to support this proposition compared an introductory, off-the-plan price at a competitor’s community (yet to commence construction), with a home in our fully operational Wollert community inclusive of a Clubhouse, all amenities, mature gardens, and market-leading customer experience. It is simply not representative and is not a like-for-like comparison.

Q: One former resident said it took 17 months to sell their property. He said it ended up costing him $100k due to exit fees, rent on an empty place and other costs incurred. He said most of his capital gain was wiped out.

We are aware of this case and are disappointed with the time it took for the property to transact. It is not in Lifestyle Communities’ interest for a sale process to take this long. We note that the homeowners’ price expectations were too high, and presentation of the home was a key challenge that impacted time on market. Despite this, the data below highlights a strong return for the homeowner after paying the DMF. Outperformance to market is evident. Annualised capital growth of 14.92% reflects a rate > 4x higher than the Wollert suburb average for the same period.

Key Financial Data

• Purchase date 23/1/2020
• Purchase price $359,800
• Sale date 25/1/2024
• Resale price $525,000
• Total Capital Growth $150,145
• Average Capital Growth $55,921
• Annualised Capital Growth 14.92%
• Fee information
• Stamp Duty $0
• Deferred Management Fees $63,000 (12%)
• Selling Administration Fees $2,625
• Marketing Fees $0
• Sales Commission $0
• Accrued Rent $0
• Refurbishment Fees $0
• Amount paid to Lifestyle $65,625
• Amount paid to Vendor $459,375
• Homeowner Profit $84,250

Q: At least 80 residents at Lifestyle’s Wollert community are taking action in VCAT because they believe Lifestyle contracts are unfair and challenging the legality of the exit fee in light of a previous win in VCAT in 2018 and a series of settlements including a Consumer Action Law Centre action regarding Willow Lodge. What is Lifestyle’s position on this? Is it concerned that so many residents are unhappy?

A: As a publicly listed company, Lifestyle Communities takes contracts very seriously. Transparency around the DMF is evident at all stages of the customer journey – on the website [Deferred Management Fee | Lifestyle Communities] in sales and marketing materials and in sales agreements. We are certainly concerned that a small group of homeowners have facilitated a campaign at our Wollert Community to lodge 80 VCAT applications suggesting that our business model and its legal construct are not lawful. All homeowners who have applied to VCAT informed Lifestyle that they clearly understood their obligations at each stage of their journey to purchase. Signed acknowledgments are a standard part of our sales process. The group that represents them has told us that they love living at Lifestyle Communities, they just don’t want to pay a DMF and believe our model is outdated. We welcome the opportunity to resolve this matter in a legal setting. The 2018 case does not relate to a Lifestyle agreement. Lifestyle has obtained legal advice and is confident its agreements comply with the law.

Q: The Housing for the Aged Action Group believes charging exit fees on the sale of the house in Victoria is a breach of the legislation. They say it is illegal. They say under s206S of the Residential Tenancies Act, the charge has to be specified precisely. (HAAG successfully argued this in VCAT in 2018 - “[A]t the time liability to pay the DMF arises the amount of the DMF (deferred management fees) is capable of calculation. However, when the Second Reading Speech is taken into account, section 206S(2) of the Act would be interpreted as requiring disclosure of the amount of the DMF before entry into the Lease… On this analysis, in my opinion [the DMF charged based on the future sale price of the dwelling] would therefore be inconsistent with the Act and would be deemed void pursuant to section 206F(3)(a) of the Act.” Any comment?

This is an issue which forms part of the current VCAT applications and so it is not appropriate that we comment in any detail. That said, we are very comfortable with our legal position with respect to this. The Residential Tenancies Act requires notice to be given on all fees and includes a DMF with a worked example in disclosure forms approved by the Director of Consumer Affairs. A template of this required form can be found on the link below, please see Part B, question 7 and Part C Notice to Prospective Site Tenant

Q: Given some of your competitors such as Stockland don't charge exit fees in Victoria or anywhere else in the country, is this impacting Lifestyle’s sales, which I note are below expectations?

Sales are below our expectations due to current real estate market conditions in Victoria, which have been impacted by 13 consecutive interest rate rises, persistent high inflation, and a number of property tax changes. Even in the current market, Lifestyle Communities continues to outsell competitors, which demonstrates that our model continues to resonate very strongly with customers. Despite the challenging conditions, FY24 sales were the fourth highest in our history.

Q: Given NSW recently banned exit fees, as has SA, and pressure is mounting in Victoria with various groups including HAAG and the Manufactured Homeowners Association lobbying for changes, do you believe changes in regulations could impact your business model, which partly relies on exit fees? If not, why not?

A: The Residential Tenancies Act was last amended in 2021 and there is no indication that this will be further amended to exclude a DMF moving forward. Many operators in Victoria have this fee. Where legislation changes, Lifestyle Communities has always sought legal advice and successfully adapted as appropriate to offer a market leading product which complies with relevant laws.

Q: Some residents we spoke to say the contracts are inflexible. One woman says she will soon need a wheelchair and wanted to build a ramp at the front of the house but was stopped. Others say there is a policy that they can only put four ornaments out the front of the house. Anymore and they have to be removed. Is this a policy and if so do residents get this fully explained before they sign?

A: We are hugely supportive of homeowners who require increased accessibility to their properties through the addition of ramp access via rear of property or garage entry points. The front of all properties is maintained to preserve the look and feel of the community. We have community policies which are fully explained when agreements are reviewed. Our team engages with individual Homeowners to support the needs of their personal circumstances. We recognise that every situation is unique and Lifestyle addresses these on a case-by case basis with the utmost care and consideration for our homeowners.

Q: Can you outline any financial and other incentives paid to salespeople and managers when they sell a house?

Our sales team members are paid:

• A base salary and statutory superannuation;
• An incentive when sales progress to the agreement signing deposit, once they achieved the minimum gateway of 10 sales. The average total incentive payment per consultant for FY24 was $15,654;
• No commission payments are paid.

Our sales team’s focus is to ensure consistent delivery of a clear, supportive and transparent sales journey for our customers and to ensure we do not foster bad sales behaviours. On top of this, we recruit for culture and train for skill in this area to deliver a high level of customer service which also results in high referral rates.

Q: Some suggest that the use of residents to sell houses through incentives such as cash, free electricity for two years and expensive holidays is a form of multi level marketing. How would Lifestyle describe this?

A: Incentives are standard practice in our industry and across many other industries. A referral program is designed to recognise and thank homeowners for referring friends and family who buy into Lifestyle Communities. Both homeowners and referees benefit from this program. The cash element of the program is $1,000 per referral for both parties, paid on the signing of a sales agreement (please refer below screenshot). For the past 2 years, our “top referrer” has received a holiday. Last year, the top referrers were Geoff and Ann Gauci. They referred 7 homeowners into Wollert.

Q: In various ASX statements you say up to 50 per cent of house sales are based on referrals by residents. Is it still at these levels?

A: Yes. It has been at this level for at least the last 6 years, and 10 years ago we developed a customer and homeowner experience journey which still operates today and continues to evolve. We are exceptionally proud of the level of referrals.

Q: Why do you think referral rates are so high?

A: Because our model works and has been proven over the last 21 years. We know that homeowners have embraced our model and love our communities. Lifestyle Communities was founded on a mandate of being morally, ethically, and socially responsible and we have never wavered from this. Our north star is the customer. Our homeowner experience is our key point of competitive differentiation. Lifestyle Communities is proud to have positively impacted the lives of thousands of homeowners over the past 21 years. Consistent feedback from homeowners tells us that they wish they had made the move earlier. We are proud to be a long-term operator with a strong history and sole focus on land lease. We are not a property developer, unlike many of our competitors. We regularly survey our homeowners to learn about and understand their needs. We invest in initiatives for the long term. For example, last year we launched Club Lifestyle on the Bellarine with 28 villas, 23 caravan spots and 3 motorhomes that provide free holidays to homeowners across all communities in Victoria.

Q: What sort of incentives are used?

A: Please see screenshot of Referral benefits below

Q: I have a copy of a pamphlet that appeared on tables at a private Christmas In July Function in the past few days that was placed on tables. It says “spread the word. Unlock the Lifestyle Plus rewards by introducing your friends to Lifestyle Communities.” It offers $1000 for each name and phone number. In an asterix it says “referral rewards await? Offer available to homeowners at one of our Lifestyle Communities. Friends introduced must be a new introduction to Lifestyle, not already listed on our database.” Is this a new promotion as I understand that rewards for referrals previously relied on settlement rather than just a name. Any comment on this change?

A: No, and our referral program has been consistent from the start. Referral payments are made when site agreements are signed.

Q: Is the unrest by up to 80 residents at Wollert having any impact on referrals?

A: No. There were 8 sales at Wollert last month, 7 of which came from a referral.

Q: At a Macquarie investor conference in May Lifestyle presented and told a audience of approx 100 fund managers that the company is doing tactical marketing and is targeting “Miss lonely”, “Miss Homely” and Miss Active” - labelling single retired women with these descriptions to buy into a lifestyle community. The company referred to the marketing as “targeting her between the eyes.” Does Lifestyle think it appropriate to label women in this way to describe prospective residents?

A: No. This was a generalised example to make a point about understanding a customer’s needs and serving tailored content that meets those needs. We acknowledge this was a very poor illustration of the concept. These are not terms that we use internally, and we regret using this type of language. It is not reflective of our brand.

Q: Shortly after raising the money the outlook was downgraded, which upset investors, pushing the share price well below the $16 raising. It is now trading at just over $12. What happened?

Please refer to various ASX market releases.