VCAT Voids Lifestyle Communities’ DMF Clause Over Disclosure Flaws
A VCAT ruling has invalidated the Deferred Management Fee clause in Lifestyle Communities’ contracts due to disclosure issues, prompting an imminent appeal and contract revisions.
- VCAT rules DMF clause void for lack of precise disclosure
- Lifestyle Communities to appeal and seek stay of orders
- New contracts to feature amended DMF calculation based on purchase price
- No breach of loan covenants despite ruling
- Stable sales and cash flow underpin ongoing operations
VCAT Decision on Deferred Management Fee
On 8 July 2025, Lifestyle Communities (ASX, LIC) disclosed a significant legal development affecting its residential land lease contracts. The Victorian Civil and Administrative Tribunal (VCAT), presided over by Justice Woodward, ruled that while the Deferred Management Fee (DMF) model itself is not prohibited under the Residential Tenancies Act 1997 (Vic), the specific DMF clause in Lifestyle Communities’ contracts is void. The reason, the clause failed to disclose a precise, calculable DMF amount at the time of contract entry, as it was based on an unknown future sale price.
This ruling challenges a core element of Lifestyle Communities’ business model, which has relied on DMFs as a way to lower upfront costs for homeowners while recouping fees over time. Justice Woodward’s decision emphasizes the need for transparent and fixed fee disclosure, rather than a variable percentage tied to resale value.
Company Response and Contract Amendments
Additionally, the company will cease charging rent on deceased estates, despite the ruling permitting continued rent payments, reflecting a customer-centric shift in policy. Existing contracts will remain under current terms until further orders are issued.
Financial and Operational Stability
Importantly, Lifestyle Communities confirmed that the ruling does not trigger breaches of its loan covenants, including loan-to-value and interest cover ratios. The company’s operating cash flow remains supported by rental annuities from over 4,000 homes under management. Trading updates for the quarter ended 30 June 2025 showed steady sales volumes, with net sales consistent with the previous quarter despite seasonal and external factors.
CEO Henry Ruiz expressed disappointment with the ruling but reaffirmed confidence in the DMF model’s benefits, particularly in improving housing affordability and retirement living standards. The company also highlighted ongoing strategic initiatives to enhance homeowner options and experience.
Looking Ahead
Lifestyle Communities plans to release its full-year results on 21 August 2025, which will provide further insight into the financial impact of these legal developments. The outcome of the appeal process remains uncertain, but the company’s proactive contract revisions and stable operational metrics suggest a measured approach to navigating this challenge.
Bottom Line?
The appeal outcome will be pivotal for Lifestyle Communities’ contract model and investor confidence.
Questions in the middle?
- How will the appeal court interpret the requirement for DMF disclosure?
- What financial impact will the revised DMF calculation have on future revenues?
- Could this ruling set a precedent affecting other land lease communities?
