Head Lease Agreement Frequently Asked Questions · Property is defined in all Head Lease Agreements as the dwelling, plus all fixtures, fittings, furnishings, appliances, plants,

Aboriginal Housing Office

Head Lease AgreementFrequently Asked Questions

HEAD LEASE AGREEMENT FREQUENTLY ASKED QUESTIONS

In the context of the Build and Grow Aboriginal Community Housing Strategy (Build and Grow), a Head Lease Agreement means the Owning Organisation signs over management of its houses to the AHO. The AHO then arranges for a Managing Provider to manage the dwellings through a Sublease Agreement. The Owning Organisation will be consulted by the AHO when subleasing decisions are being considered.

This does not mean that the dwelling now belongs to another organisation -

it simply means that the dwelling will be managed by another organisation

Contents

What is head leasing? 3

What are each party’s responsibilities under head leasing? 5

Why does the AHO lodge a ‘registration of interest’ on a property? 6

What to consider when entering into a Head Lease or Sublease Agreement? 7

What are the Owning Organisation’s obligations and what financial assistance will be received? 8

What about insurances? 11

What about tenancy management? 12

How is rent collection managed? 13

The Head Lease Agreement is signed - where to from here? 14

2 Head Lease Agreement Frequently Asked Questions (Issued December 2014)

Head Lease Agreement FAQ


WHAT IS HEAD LEASING?

1. What is head leasing?

Head leasing is an important part of the Build and Grow Aboriginal Community Housing Strategy (Build and Grow) being implemented by the Aboriginal Housing Office (AHO).

Aboriginal Community Housing Providers (ACHPs) that do not want to embark on a performance-based pathway to seek registration with the AHO may head lease their properties to the AHO.

The AHO then subleases the properties to Approved ACHPs that are registered with the AHO and are eligible to manage housing.

2. How is property defined in a Head Lease Agreement?

Property is defined in all Head Lease Agreements as the dwelling, plus all fixtures, fittings, furnishings, appliances, plants, equipment, fencing and surrounding parcels of land.

3. Who is the Owning Organisation?

An Owning Organisation is the organisation which owns the properties and signs the Head Lease Agreement.

4. Who is the Managing Provider?

The Managing Provider is the ACHP (that is registered with the AHO as an Approved Provider) that signs a Sublease Agreement with the AHO. The Managing Provider manages head leased properties on behalf of the Owning Organisation.

5. What is the purpose of the Head Lease Agreement?

The Head Lease Agreement outlines the rights and responsibilities of the Owning Organisation and the AHO, and grants the AHO a leasehold interest in the property. This allows the AHO to enter into a Sublease Agreement for the same property with a Managing Provider for a fixed duration, usually five (5) years with a renewal option for a further five (5) years.

6. What is the purpose of the Sublease Agreement?

The Sublease Agreement enables the AHO to transfer property and tenancy management responsibilities to the Managing Provider for a fixed duration. Although the Sublease Agreement is a separate and distinct agreement to the Head Lease Agreement, the duration and provisions contained in the Sublease Agreement largely mirror the Head Lease Agreement.


See the Head Lease Policy for more information.

See the Sublease Policy for supporting details.


7. What can head leased properties be used for?

The AHO intends head leased properties to be used for long-term rental housing for eligible Aboriginal people.

There is a clause in the Head Lease Agreement that allows the AHO to use the property for an ‘incidental purpose’. This clause allows the AHO to be flexible if needed. For example, the community may need emergency accommodation. The Owning Organisation may choose to have this clause deleted and should speak to the AHO about it when negotiating the Head Lease Agreement.

8. Why enter into a Head Lease Agreement?

A Head Lease Agreement between the Owning Organisation and the AHO will suit those ACHPs who choose not to embark on a performance-based pathway to seek registration with the AHO. It allows ACHPs to access professional tenancy and property management and to have their properties upgraded through funding provided under the National Partnership Agreement on Remote Indigenous Housing (NPARIH), while retaining ownership.

9. What are the different types of lease documents?

There are two types of lease agreements:

1. A Head Lease Agreement is between the Owning Organisation and the AHO.

2. A Sublease Agreement is between the AHO and the Managing Provider.

Templates for the documents have been prepared so that an ACHP can review the terms of the Head Lease and Sublease Agreements prior to making decisions about whether to be assessed for managing housing as an AHO Approved Provider, or whether to head lease its properties to the AHO.

10. Do all properties have to be included in the Head Lease Agreement?

Yes. Once an Owning Organisation chooses to head lease, all residential dwellings must be included in the final property schedule. However, in instances where dwellings have been deemed ‘beyond economical repair’, are uninhabitable, or are offices or other non-residential dwellings, the AHO will exclude them from the property schedule.

11. Will properties excluded from the Head Lease Agreement, that are managed by an Owning Organisation, and which are titled to the AHO, Land and Housing Corporation, or Housing NSW receive property upgrades?

AHO will organise upgrades for AHO titled properties. However properties titled to other entities will not be eligible to receive upgrades under the Head Lease and Sublease Agreements.


Please contact your local AHO Office for further information about Head Lease and Sublease Agreements.


WHAT ARE EACH PARTY’S RESPONSIBILITIES UNDER HEAD LEASING?

12. What are the main responsibilities of the Owning Organisation?

Important responsibilities that remain with the Owning Organisation:

• Allow the AHO to use the property as agreed to in the Head Lease Agreement

• Pay insurance, rates, taxes and debts incurred before the Head Lease Agreement is signed (such as rate debts to local shires)

• Continue responsibility for reporting to its Board or Council on the management of its assets.

13. What are the main responsibilities of the Managing Provider?

• Tenancy and property management for the life of the Sublease Agreement. This includes collection of rental revenue to be used to meet the costs of property and tenancy management including rates, insurance, responsive maintenance, planned (cyclical) maintenance, staffing and administration.

• To meet the obligations required of the landlord under the Residential Tenancies Act 2010.

• Maintenance of proper records regarding management of the properties.

• To provide regular reporting to the AHO.

• To maintain ‘Approved Provider’ status.

14. What are the main responsibilities of the AHO?

• To provide reporting to the Owning Organisation.

• To arrange the sublease.

• To monitor the Managing Provider to ensure it manages properties and tenancies in accordance with AHO policies and standards.

• To arrange and pay for initial backlog maintenance or refurbishment work using funds provided under the National Partnership Agreement on Remote Indigenous Housing (NPARIH)

• To pay for and ‘register an interest’ on the title of all properties that are head leased. The AHO will not register an interest on part of any ex-reserve or mission that is not specifically included in the property schedule. The AHO only head leases houses and their immediate surrounds.


This is an indicative list only - please contact your local AHO office for further information about the Head Lease and Sublease Policies.




WHY DOES THE AHO LODGE A ‘REGISTRATION OF INTEREST’ ON A PROPERTY?

15. What is a ‘registration of interest’?

Under the Head Lease Agreement, title to the properties remains with the Owning Organisation, but the head lease creates a registrable leasehold interest in the land under Part 4 of the Aboriginal Housing Act 1998.

A ‘registration of interest’ through the Head Lease Agreement means that an Owning Organisation will need to seek permission from the AHO if it wishes to transfer, change purpose or otherwise deal with the land.

The AHO will not unreasonably withhold its agreement to dealing with the property.

16. Why does the AHO lodge a ‘registration of interest’ in the land?

The ‘registration of interest’ is a protective measure for the AHO, for the financial investment made in head leasing and subleasing, and repairing the properties.

17. When will the AHO lodge a ‘registration of interest’?

The AHO will legally lodge a ‘registration of interest’ on the properties included on the property schedule when a Head Lease Agreement commences. This is purely a legal mechanism.

For ACHPs (except Local Aboriginal Land Councils) the AHO will lodge interest immediately after the Head Lease Agreement commences.

In order for AHO to proceed with this part of the process for a LALC, it must first have had a Registration Approval Certificate (RAC) issued by NSWALC to allow interest to be registered.

18. How long will the ‘registration of interest’ last?

The period of the ‘registration of interest’ is linked to the Head Lease Agreement period and is usually for ten years.

19. Do mortgages affect the signing of a Head Lease Agreement? Can the AHO proceed with a ‘registration of interest’?

In most cases, the AHO can proceed with a ‘registration of interest’ on titles which have a mortgage without obtaining prior consent from the mortgagee. However it would be prudent for the Owning Organisation to first inform the mortgagee of its intent, and advise both the loan amount and whether mortgage repayments can be met by the Managing Provider.



WHAT TO CONSIDER WHEN ENTERING INTO A HEAD LEASE OR SUBLEASE AGREEMENT

20. Can the Owning Organisation or Managing Provider negotiate the terms and conditions of the Head Lease or Sublease Agreement?

The AHO uses standard templates for the Head Lease and Sublease Agreements. There is some limited scope for negotiation.

21. How do I determine whether to accept a Head Lease or Sublease Agreement?

Head leasing and subleasing are commercial decisions. Each prospective Owning Organisation or Managing Provider should undertake its own due diligence. The AHO recommends that Providers seek independent legal advice before entering into an agreement.

22. What should Owning Organisations consider when deciding whether to head lease?

In deciding whether to head lease, some of the things Owning Organisations need to consider include the existing state of their portfolio, their options should they not head lease, the importance of professional property and tenancy management; and prospective backlog repairs and maintenance or refurbishment.

23. What should Managing Providers consider when deciding whether to sublease?

In considering whether to sublease, Managing Providers need to undertake due diligence of the housing portfolio involved and, more broadly, consider whether managing properties under a sublease is aligned with the Managing Provider’s strategic business plan.

24. What if the Owning Organisation owns property titled in another name? Is a name change required?

In most cases, a name change is not required as a precondition to signing a Head Lease Agreement if the Owning Organisation can show evidence that the property is titled to the same entity. The Owning Organisation should discuss this with the AHO prior to signing a Head Lease Agreement.

25. How long does the head leasing process take?

Head leasing is a complicated process, requiring various approvals and checks to be completed before an agreement can be signed by both parties. For LALCs, land dealing meetings are required to agree to enter into head lease negotiations, and then to agree to the final Head Lease Agreement. This process can take some time.

Before a Head Lease Agreement can be populated with property details, the AHO needs to ensure the property ownership and title details are correct. Title searches and visual confirmation of properties are completed to verify properties in the Head Lease Agreement. Sometimes there are complicating issues related to property titles, such as incorrect names on titles, or joint ownership. These issues need to be sorted out before a property can be head leased.



Experience shows that getting a Head Lease Agreement signed takes an average of 3–6 months, with some head leases taking as long as one year to get signed.

The AHO is working closely with the sector to minimise delays with the head leasing process.

26. What happens to AHO properties once an Owning Organisation chooses to head lease?

The AHO will place the properties under a Management Agreement with an Approved Provider (Managing Provider).

27. Can the AHO facilitate the process?

The AHO can facilitate meetings between the Owning Organisation and a prospective Managing Provider. The AHO can also provide information about potential subsidy amounts that may be payable under sublease arrangements.

28. Can an Owning Organisation resume management of its properties if it becomes an Approved Provider?

During the term of the Head Lease Agreement, the Owning Organisation may choose to undertake a performance assessment in order to apply for registration as an Approved Provider. If successful, the Owning Organisation could take over management of its properties after the current Head Lease Agreement expires. Where AHO has the right to extend the head lease for a further five year term, the Owning Organisation will need to seek AHO agreement to end the head lease arrangement.

WHAT ARE THE OWNING ORGANISATION’S OBLIGATIONS AND WHAT FINANCIAL ASSISTANCE WILL BE RECEIVED?

29. Are Owning Organisations required to sign a separate Funding Agreement for backlog repairs and maintenance or refurbishment?

No. The AHO Head Lease Agreement and the Funding Agreement have been combined to streamline the process. This means that Owning Organisations do not need to sign a separate Funding Agreement.

30. What happens if the Owning Organisation has a debt?

In some cases, Owning Organisations will have existing property-related debts such as council or water rates or unpaid maintenance costs. All existing property-related debts must be disclosed to the AHO prior to the signature of the Head Lease Agreement.

The AHO will not enter into a head lease with an Owning Organisation that has outstanding debts. The Owning Organisation must either pay off the debt, or show evidence that there is a payment arrangement in place which outlines how the debt will be paid.



31. What happens if an Owning Organisation has no income other than rents?

Where an Owning Organisation has no income beyond rent on its properties, it may request appropriate funds from the AHO to cover costs needed for the continuation of the organisation. This could include audit fees, Annual General Meeting costs, reporting costs and rates on vacant land.

These costs will be included in the costs to be recovered from rents. These costs should be agreed at the time the Head Lease Agreement is being negotiated.

32. What are the financial obligations of the Owning Organisation under the Head Lease and Sublease Agreements?

From the commencement date of the Head Lease Agreement, the Owning Organisation ceases to be liable for any of the costs associated with the management of the housing portfolio. The Owning Organisation continues to be responsible for any other costs associated with its own activities.

33. What are the financial obligations of the Managing Provider under the Sublease Agreement?

From the commencement date of the Sublease Agreement, the Managing Provider will be responsible for tenancy and property management for the life of the sublease. This includes collection of all rental revenue which will be used to meet the costs of property and tenancy management including rates, utilities, insurance, responsive maintenance, planned (cyclical) maintenance, staffing and administration.

Should there be insufficient funds at any point to cover staffing and administration costs associated with the management of head leased properties, the deficit may be carried forward for recovery from later rental income.

Any management fees intended to cover staffing and administrative costs must be separately identified in property reports provided to the AHO so it can report them to the Owning Organisation. The AHO is also working with Managing Providers to develop standard management fees, taking variations between portfolios into account. Owning Organisations who have concerns in this area should consult the AHO.

34. What are the financial obligations of the AHO under the Head Lease Agreement?

The costs of initial backlog maintenance or refurbishments after the Head Lease Agreement has been executed will be paid by the AHO using funds made available under the National Partnership Agreement on Remote Indigenous Housing (NPARIH). The AHO will pay the costs of registering an interest on the property, and is also responsible for ensuring that the Owning Organisation does not become liable for any of the costs associated with the management of its housing portfolio incurred from the commencement date of the Head Lease Agreement.

35. Who is responsible for the payment of rates once a head lease has been signed?

All council rates collection and payment becomes the responsibility of the Managing Provider.

36. What assistance is available to Managing Providers?

Assistance is available for a Managing Provider to help with property and tenancy management. Further details can be obtained from the AHO. Refer also to the Rent Policy and Subsidy Policy for details of Build and Grow rents and the subsidies available.



37. When is a Managing Provider eligible for the Sublease Subsidy?

Upon signing the Sublease Agreement, the Managing Provider is eligible for a Sublease Subsidy. The subsidy is intended to assist Managing Providers to improve property and tenancy management activities and is separate from the income and expenses directly associated with the management of particular head leased properties.

38. When does the Rent Gap Subsidy start?

After both the Head Lease and Sublease Agreements are signed, upgrade works will commence on the properties which are listed in the agreements. Once properties are upgraded, the Managing Provider can commence implementation of Build and Grow rents. At this stage, a Rent Gap Subsidy will be available. This subsidy forms part of the rental stream on head leased properties and should therefore be included in rental income.

39. Which Owning Organisations are eligible for the Infrastructure Subsidy?

The Infrastructure Subsidy may be paid to Managing Providers that manage discrete communities, former reserves or missions under a sublease. The purpose of the subsidy is to assist in meeting the costs of essential housing-related infrastructure such as maintenance of common areas. Please see the Subsidy Policy and supporting FAQs for further information about the Infrastructure Subsidy.

40. What is fair wear and tear?

Fair wear and tear generally means unavoidable deterioration to the dwelling that happens through the ordinary day-to-day use by a tenant, e.g. worn carpets or floors due to walking traffic or ordinary affects to the dwelling caused by natural forces such as paint fading or discolouring by sunlight or rain.

Under the Sublease Agreement the Managing Provider is not responsible for fair wear and tear.

41. Who pays for urgent repairs prior to the introduction of Build & Grow rents?

From the commencement date of the Sublease Agreement, the Managing Provider must respond to any requests from tenants for urgent repairs. To assist Managing Providers during the period from the commencement date until the introduction of Build and Grow rents, the AHO may provide reimbursements for the cost of urgent repairs as defined in Clause 19 of the Residential Tenancy Agreement 2010.

42. When will scoping for backlog or refurbishment work be done?

As head leasing is a complicated process and can take some time, scoping will not commence until the Head Lease Agreement is scheduled to be signed or very close to being signed.

The AHO cannot commence upgrade works until the Head Lease Agreement is signed. By commencing scoping close to the signing date, the scopes will be relevant, up-to-date and completed in readiness for works to commence. However, the exact timing of maintenance work will depend upon the AHO works program.


Further details can be obtained from the AHO.


WHAT ABOUT INSURANCES?

43. Do the properties have to be insured?

Yes. The Managing Provider must obtain and maintain insurance cover for the property and ensure payment of insurance premiums. The Managing Provider is expected to deduct such costs from rental income received from its residential tenancies.

44. What must the insurance cover?

Under the Sublease Agreement, the Managing Provider must insure the property against damage, public liability insurance and any other insurable event as may be required by the AHO.

Under the Head Lease Agreement, the AHO is only obliged to insure the property against damage either by way of a commercial insurance policy or self insurance.

The Owning Organisation is not obliged to take out any form of insurance over the property.

45. What happens if a property is damaged or destroyed by natural causes?

A natural cause is defined as ‘fire, flood, lightning, storm, tempest, earthquake or other disabling natural cause’.

There is no obligation on the Owning Organisation, the AHO or the Managing Provider to pay for this insurance.

Under the Sublease Agreement, because of the high cost of insurance for natural causes (storms, floods etc.), the AHO does not require the Managing Provider to arrange and pay for insurance to cover damage from natural causes.

If the property is damaged or destroyed by natural causes, both the Head Lease and Sublease Agreements give the AHO absolute discretion to decide whether or not to rebuild, repair or replace the property.

Should damage by natural cause render the property unfit for use and occupation and the AHO considers it undesirable to rebuild, repair or replace the property then either party has the option to end the head and/or sub lease. This would normally be done by excising the property from the head and subleases. Should this happen, the AHO will use its best endeavours to relocate the residential tenant.

Whilst there is no obligation on the Owning Organisation, the AHO or the Managing Provider to insure the property against damage by natural causes, either party is at liberty to obtain such insurance.

46. What is ‘AHO self insurance’?

In some areas of NSW, insurance for properties may be too expensive or not available. In this case, the AHO will ‘self insure’. This means the AHO will provide the same insurance coverage as would have been provided if insurance was bought. This insurance coverage is at the level required to fulfil the obligations of the Head Lease Agreement and to protect the Owning Organisation.

47. When does the AHO self insure?

The AHO will self insure under exceptional circumstances only, until other insurance coverage can be supplied. These circumstances will be negotiated with the Owning Organisation and the potential Managing Provider at the time of signing the Head Lease and Sublease Agreements and will be outlined in the Sublease Agreement.



WHAT ABOUT TENANCY MANAGEMENT?

48. Does the Owning Organisation have to hand over tenant files prior to the sublease commencing?

No. However, the Owning Organisation must hand over relevant information which would otherwise prevent the Managing Provider from carrying out its landlord duties effectively. This may include a rent roll, and previous Residential Tenancy Agreements.

49. What happens to existing tenants under a Head Lease Agreement?

The Head and Sublease Agreements require properties to be sub-sub leased to eligible people. However, this does not affect existing tenants. In most cases tenants will remain in their home, but will deal with the new Managing Provider for issues relating to their tenancy.

50. Which housing policy does the Managing Provider use to manage properties?

The Managing Provider will manage properties in accordance with their own housing management policies. The AHO sets the high level housing management policies. The AHO housing policies outlines the expectations and tenancy management approaches that a Managing Provider will follow. Managing providers develop (or amend) their own housing management policies so they align with the AHO’s housing policy guidelines.

51. What are the AHO housing management policies?

Most of these policies are currently under development by the AHO and will outline the approaches to eligibility, rent, housing allocations and tenancy management. The Managing Provider should set rents in accordance with the Build and Grow Rent Policy. For other policies the Managing Provider can use the principles outlined in the Housing Aboriginal Communities Program (HACP), for tenancy management and allocation of housing, as an interim guide.

52. Who manages the tenant waiting list?

When the Head Lease Agreement is signed, the Owning Organisation should provide its waiting list to the AHO who will give it to the Managing Provider. The Managing Provider is then responsible for maintaining the waiting list. The Owning Organisation can request that its own waiting list eligibility criteria be used to house tenants, subject to alignment with the AHO and Managing Provider’s housing management policies.

53. What happens if there is no waiting list or it is not given to the AHO?

If there no waiting list, or it is not provided shortly after the head lease is signed, the Managing provider will use its own waiting list and housing management policies.



54. How will future tenants be selected?

In regard to future vacancies, the Managing Provider is responsible for letting properties to eligible tenants in accordance with its own policies and procedures. Generally, the Managing Provider will allocate to eligible tenants already on the waiting list provided by the Owning Organisation. However where there is no waiting list, or it wasn’t provided, the Managing provider will allocate properties to eligible people from its own waiting list.

55. Can the Managing Provider terminate Tenancy Agreements?

Yes, under the Residential Tenancies Act 2010, Section 81, the Managing Provider can terminate a tenancy if a termination notice is given to the tenant, or if termination is ordered by the NSW Civil and Administrative Tribunal (NCAT).

56. Can a tenant of a head leased property purchase the dwelling following backlog maintenance completion?

Yes, if the Owning Organisation is willing to sell the property to the tenants. The AHO strongly encourages home ownership and can allow for a head leased property to be purchased once a request has been received in writing. However this is at the discretion of the AHO. Once the request has been approved, the AHO will remove its interest on the property but is not responsible for removing other entities interests on Title.

HOW IS RENT COLLECTION MANAGED?

57. What will rents be set at when the head lease has commenced?

Rents will be charged in accordance with the Build and Grow Rent Policy, following completion of any required building works. Under the Build and Grow Rent Policy, tenants will generally pay a ‘household rent’. Household rents are based on household composition and are set at a level that attracts maximum Commonwealth Rent Assistance.

58. Who is responsible for rent collection? What are the monies used for?

All tenancy and property management, including rent collection becomes the responsibility of the Managing Provider once the Head Lease and Sublease Agreements have commenced. The monies collected will be used for cyclical maintenance and general administration such as paying rates, insurance, responsive maintenance and staffing.

59. Can the Managing Provider recover existing arrears?

Existing arrears remain the responsibility of the Owning Organisation even after a head lease has commenced. However the Owning Organisation may negotiate with the Managing Provider to recover existing arrears on its behalf.


Please see the Build and Grow Rent Policy for further information.

14 AHO Community Housing News

Aboriginal Housing Office

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T: 02 8836 9444Free Call: 1800 727 555

Northern RegionFirst Floor 51 Moonee Street(PO Box 522) COFFS HARBOUR NSW 2450

T: 02 6659 2630

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T: 02 6841 9100

Sydney/South Eastern RegionLevel 6, 31-39 Macquarie Street(PO Box W16 Westfield)PARRAMATTA NSW 2150

T: 02 9354 1550


THE HEAD LEASE AGREEMENT IS SIGNED, WHERE TO FROM HERE?

60. What reports do I receive on the management of my properties?

Under the terms of the Head Lease Agreement, the AHO is required to provide Owning Organisations with six monthly reports on the management of its properties. In turn, the Managing Provider is required to report to the AHO on key financial and tenancy management details, every six (6) months.

61. What happens if there is a dispute about the operation of Head or Sublease Agreements?

If you have concerns about the operation of the Agreements, you should first discuss them with the AHO, as Head and Sublease Agreements contain formal dispute resolution procedures.

62. What happens to retained funds at the end of the Head Lease Agreement?

At the end of the Head Lease Agreement, any funds set aside by the Managing Provider for responsive and cyclical maintenance will be returned to the Owning Organisation by the AHO. Alternatively, they may be retained for use by the Managing Provider should the duration of the head lease be extended.

63. Who should you speak to for more information about head leasing?

Please contact your local AHO Regional Manager if you would like more information about head leasing.


See Section 7 of the Head Lease and Sublease Policies for more details.

See Section 8 of the Head Lease and Sublease Policies for more details.

Documents

Head Lease Agreement Frequently Asked Questions · Property is defined in all Head Lease Agreements as the dwelling, plus all fixtures, fittings, furnishings, appliances, plants,