Lifestyle Communities Could Adjust Asset Values by $117 Million with New DMF Model
Lifestyle Communities is extending an option for existing homeowners to adopt a revised Deferred Management Fee model following a pivotal VCAT ruling, aiming to enhance transparency and goodwill regardless of the appeal outcome.
- New DMF model calculates fees on purchase price, capped at 20% over five years
- VCAT ruling invalidated prior DMF clauses based on sale price, causing a $0 write-down
- Existing homeowners can opt into the new model after appeal resolution
- Potential $117 million carrying value adjustment if all switch to new DMF model
- Move aims to boost homeowner satisfaction, reduce litigation risk, and protect brand
Background on the DMF Model Shift
In July 2025, Lifestyle Communities Limited (ASX, LIC) revised its Deferred Management Fee (DMF) structure following a Victorian Civil and Administrative Tribunal (VCAT) ruling that challenged the validity of its previous fee calculation method. The original model, which based fees on a percentage of the sale price, was ruled void for certain agreements because the fee could not be precisely determined at contract inception. This legal setback forced the company to write down the DMF component of its investment properties to zero as of 30 June 2025.
Introducing the New DMF Model
The new DMF model, implemented for new homeowners, calculates fees on the purchase price pro-rated over five years, capped at a maximum of 20%. This approach aligns with the VCAT ruling and provides clarity and certainty for homeowners and the company alike. Importantly, Lifestyle Communities is now offering existing homeowners the option to transition to this new model once the appeal against the VCAT decision is resolved, regardless of whether the appeal is successful.
Strategic Rationale and Homeowner Benefits
By extending this choice, Lifestyle Communities aims to foster goodwill and transparency within its homeowner community. The company anticipates that allowing homeowners to make an informed decision about their fee structure will enhance satisfaction and protect a historically strong sales referral rate, which has accounted for up to 50% of new sales. This move also mitigates potential litigation and regulatory risks associated with prematurely implementing the new model before the appeal's outcome.
Financial Implications and Market Impact
Should all existing homeowners elect to adopt the new DMF model, Lifestyle Communities estimates a potential positive adjustment of up to $117 million to the carrying value of its investment properties as of 30 June 2025. This contrasts with a larger $193.5 million adjustment if the appeal fails and no changes are made. These figures underscore the material financial impact of the DMF model's evolution and the importance of the upcoming appeal decision.
Looking Ahead
The company’s approach balances legal prudence with community engagement, positioning Lifestyle Communities to strengthen its brand reputation and operational stability. Investors and homeowners alike will be watching closely as the VCAT appeal unfolds and as homeowners decide whether to embrace the new fee structure.
Bottom Line?
The resolution of the VCAT appeal and homeowner uptake of the new DMF model will be pivotal in shaping Lifestyle Communities’ financial and reputational trajectory.
Questions in the middle?
- What will be the final outcome of the VCAT appeal and its legal reasoning?
- How many existing homeowners will choose to transition to the new DMF model?
- What impact will these changes have on Lifestyle Communities’ future sales and referral rates?
