B34/1992 ASSESSMENT OF SALE LEASEBACK AGREEMENTS

DATE OF ISSUE: 20 JULY 1992

ASSESSMENT OF SALE LEASEBACK AGREEMENTS

Purpose

To advise the arrangements for assessing sale leaseback agreements for income support purposes.

Definition

2.Sale leaseback agreements allow a person to sell his or her home for a fixed price but retain the right to live in that home for life or for a fixed period.  Under these arrangements, the buyer pays the pensioner an initial payment amount (IPA) with the balance or deferred payment amount (DPA) payable as a lump sum, on vacation of the property, or death of the pensioner (ie to the estate), at the end of the fixed period.  The payment of DPA may also be made by way of periodic instalments.

The sale leaseback contract

3.The sale leaseback contract will usually involve the following:

- a mutually agreed, fixed sale price.  This means that any future increase in the value of the home is not passed on to the pensioner;

- making a down payment, generally between 25% and 50% of the agreed price.  The exact amount is usually set by the firm offering the contract;

- the balance owing paid either as a regular payment to the person while they continue to reside in the property or as a lump sum amount paid on vacating the property.  The payments are usually paid free of interest;

- the title deed can remain in the person's name or be transferred to the buyer's name depending on the terms of the agreement;

- an agreement granting occupancy for life* or an agreed period; and

- the person may be required to pay rent whilst he/she is occupying the sale leaseback home.

{ * This is different to a Life Interest in that a Life Interest is usually willed to a person}

Changes to the Veterans Entitlements Act (VEA)

4.The sale leaseback agreements are to be assessed under the same provisions as those applicable to granny flats and retirement villages.  These are now all referred to as "Special Residences".

5.In the granny flat and retirement villages, the entry contribution is the amount the person pays or agrees to pay to enter into the special residence.  Under a sale leaseback agreement, the balance owing (ie. DPA) will be regarded in the same way as an entry contribution for determining whether the person is a property owner or non-property owner.

Date of Royal Assent

6.The effective date for the legislative changes is 26 June 1992.

Assessment of IPA and DPA

7.The treatment of IPA is dependant on what the pensioner does with the money.  The IPA is not regarded as an asset but if the money received is invested, gifted, etc, then the normal assessment rules will apply.

8.The DPA is treated as the entry contribution to the sale leaseback agreement.  The DPA includes any payments made by way of periodic instalments.

9.It is important to note that if payments of either the IPA or the DPA are received in periodic instalments, they are not to be treated as income.

10.Attachment A sets out a table of the basic rules for assessment.

11.These arrangements mean that where the seller:

- is classified as a property owner, the

DPA is disregarded as an asset when determining pension payable;  and

- is classified as a non-property owner, the

DPA is regarded as an asset when determining pension payable.

Commission discretion

12.Commission has the discretion under section 5MB of the VEA to determine the IPA amount or the DPA amount if for any special reason it considers it should be another amount.

13.The same delegations which are applicable to other Special Residences will also apply to sale leaseback agreements.  Formalisation of this process is currently underway.

PROCEDURES

The sale leaseback contract

14.Where a person enters into a sale leaseback contract, the following documentation is required to verify the existence of an agreement:

a)Obtain copy of the relevant pages of the sale leaseback contract.  The relevant pages will cover the terms of the agreement and includes:

. the parties of the contract,

. whether any rent, maintenance or other amounts are payable,

. the amount of the IPA and DPA, and

. the period of the contract.

b)Check if contract is stamped by the State Duty Office.

i) If the contract has been stamped, then the contract is accepted without a valuation.

ii) If the contract is presented without the stamp, then advise the pensioner that the stamp is required before the contract can be accepted.

iii) If the contract is presented without the stamp and there is any reason to believe that the sale leaseback contract has been entered into with friends or family on an informal basis and the pensioner is unwilling to provide a valuation certificate, then a property valuation may be required, pending individual circumstances.

Assessment of DPA where the home has been 'undervalued'

15.Where a person has 'undervalued' their home under the sale leaseback agreement, the DPA will be assessed as the value of the property minus the IPA, regardless of the amount agreed to be paid as the deferred payment.

16.Where a client enters into a sale leaseback agreement for life and the terms of the agreement are such that no amounts are paid or else an IPA is received but no other payment is required to be made, the life interest would be calculated in a similar manner to those used to value the life interest in granny flats (refer DI B13/92 - Right to Accommodation).  In these cases, the value of the right to accommodation plus the IPA calculated would be subtracted from the actual value of the property to determine the DPA.

17.Under these procedures, there is no need to consider whether deprivation has occurred.

Payment of Rent Assistance

18.If staff receive any cases where the payment of rent, service or maintenance fees form part of the agreement, and rent assistance may be payable, details of the case are to be forwarded to Central Office Policy Development and Implementation Section in the first instance.  Central Office will then liaise with DSS before a decision can be made on whether rent assistance is payable.

19.DVA and DSS will be monitoring and reviewing the deprivation aspects of these cases as they arise to see whether any further legislative changes are required.

Systems changes

20.The PIPS home screen (PP.HO) will have a new residential situation code of "SL".  This change will also be reflected in the General Inquiry and Trial screens.

i)A LOW or HIGH ASSET LIMIT may be entered with a residential situation of SL.

ii)Where the asset limit is LOW, no rent amount or accommodation purchase amount (DPA) is to be entered.

iii)Where the asset limit is HIGH, a rent amount may be entered and an accommodation purchase amount (ie. DPA) must be recorded.  The accommodation purchase amount (DPA) entered is to be assessed as an asset.  Any rent amount entered is to be used in the calculation of the payment of rent assistance (refer paras 18 and 19 of this DI).

Pensioner enquiries

21.The Financial Information Service (FIS) run by DSS will be available to answer pensioner's enquiries relating to companies which offer sale leaseback contracts.

22.Pensioners seeking advice from staff on whether or not to enter into a sale leaseback agreement should be advised to seek independent advice.

Branch Office enquiries

23.If you have any enquiries in relation to this instruction, please telephone Masuda Sheikh on (06) 289 6442.

Peter Hawker

National Program Director

Benefits

15 July 1992

Attachment A

Entry contribution — Assessment

If the entry contribution (ie DPA). property owner

is greater than the

Extra Allowable Amount *. not eligible for rent assistance

then. DPA is disregarded as an asset

the pensioner is subject to the

LOW asset limit

If the entry contribution (DPA). non-property owner

is less than or equal to the

Extra Allowable Amount*. may be eligible for rent assistance

then. DPA is maintained as an asset

the pensioner is subject to the

HIGH asset limit

* The Extra Allowable Amount is the difference between the non-property owner high asset limit and the property owner low asset limit applicable to the pensioner's marital status.