BUDGET – Running Cost Deficit

THE ARQRV SOUGHT LEGAL ADVICE ON THE FOLLOWING QUESTION.

Can you advise whether to your knowledge there is an industry standard procedure that is followed when constructing a new village?

In order to attract residents a developer will erect the community centre and communal facilities first as well as engaging a manager plus maybe staff. As the accommodation units are built and occupied a few at a time their contributions by way of monthly fees will likely be insufficient to meet the full cost of operating the communal facilities which have been designed for the use of the completed village.

The question here then is:

How do scheme operators make good the deficit between the cost of running the community centre and facilities created when contributions received from occupied units is insufficient?

 

 

RESPONSE FROM OUR ARQRV LEGAL ADVISOR

I don’t think there is any binding industry standard.   Village operators seem to just subsidise the general services charges to the extent they think is necessary to make the service fees for their units competitive as compared to completed villages in the market (ie if an incomplete village passed the full cost of the community facilities on to the early buyers, the service fees would be so high as to repel buyers).

This issue as at the heart of the (name withheld) case (which we won in the QCAT appeal tribunal but lost when the operator appealed to the Supreme Court’s Court of Appeal).  That case involved an incomplete village where the total budget for the GSC did not comply with the CPI cap in s106 but the proportion of the costs passed on to the residents did comply.  We argued that s106 should apply to the total budget rather than the proportion passed on to residents, as the total costs will eventually be passed on to the resident body when the village is completed (and therefore need to be restrained at a reasonable level).  However the village successfully argued that s106 only applied to the proportion of the budget passed on to residents.  The Court accepted this even though it meant residents could not check whether a budget complied with s106 (because the proportion of each line item passed on to residents was not disclosed) and even though it meant operators were free to ‘overspend’ on services in order to attract residents to unsold units and later could withdraw their subsidy once the village was fully built and sold, forcing residents to accept a reduction in the services that lured them in.

Again this needs to be addressed in the legislation but I haven’t seen any signs that this is likely to happen.

One Reply to “BUDGET – Running Cost Deficit”

  1. I think it should become a case of Unconscionable Conduct. The operators subsidise the monthly levies at the start of operations and a deficit builds up in the GSF accounts in the village. It appears in our village that that deficit built up continually over at least the last 5 years that I have documented, resulting in a $100k current deficit on one of the GSF accounts which now has to be met by the current residents and paid back over a period of years with a significant impact on the resident’s monthly levy. New legislation that might be introduced into Queensland that would prohibit the accumulation of deficits year by year means that some village residents could be met with a very hefty call on their meagre savings rather than amortising it over many years. Even so it should have been up to the operator to pay back the accumulating deficit annually, to balance the books, from exit fees rather than charge incoming future residents the accumulated deficit from say a previous 10 year time span. Another time bomb waiting to explode? Just do the arithmetic 100/50 is $2k each resident, maybe it would be added to the exit fee? Another win – win for the operator?

Leave a Reply