It has been a day to forget for one ASX 200 stock on Wednesday.
In morning trade, this stock has returned from a trading halt and crashed over 40% into the red.
Let's find out what is going on.
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Which ASX 200 stock is crashing?
The stock that investors are selling down today is Lifestyle Communities Ltd (ASX: LIC).
It develops, owns and manages affordable independent living residential land lease communities. At the last count, Lifestyle Communities had 32 residential land lease communities under contract, in planning, in development, or under management. Over 5,500 Victorians were calling these communities their home.
In early trade, its shares were down 42% to a multi-year low of $4.08.
What's going on?
Investors have been selling off this ASX 200 stock after it was dealt a major legal blow this week.
On Tuesday, Lifestyle Communities revealed that it has been directed to scrap certain exit fees following a ruling by the Victorian Civil and Administrative Tribunal (VCAT).
The tribunal ruled that the company had been charging some residents significant exit fees, known as deferred management fees (DMF), without adequate disclosure. It advised:
Justice Woodward ruled that the Residential Tenancies Act 1997 (Vic) (Act) does not prohibit a DMF but found the DMF clause in Lifestyle Communities contracts was void due to the lack of disclosure of a precise amount.
Commenting on the decision, the ASX 200 stock's CEO, Henry Ruiz, said:
We respect and acknowledge the rights of homeowners to seek clarity through VCAT on matters that are important to them and where we have been unable to reach agreement via our usual engagement channels. We take our compliance obligations very seriously and have sought and obtained legal advice at various stages in our history to ensure our contracts are compliant with all relevant legislation. We are disappointed with the outcome of the VCAT proceedings and intend to lodge an appeal.
In light of the decision, the company will amend the DMF calculation method to be consistent with Justice Woodward's findings.
And while the "continued charging of rent after the passing of a homeowner was found permissible under the Act, Lifestyle Communities will no longer charge rent on deceased estates."
Outside this, the company released a business update which showed that trading conditions have been tough. It advised that "Q4 sales rates to remain subdued impacted by seasonality, the Easter holiday period, and the federal election."
Nevertheless, Ruiz remains upbeat on the company's outlook. He said:
We were encouraged with the sustained performance in our sales rates in Q4 in what is traditionally a seasonally lower period. The fundamental drivers of demand by homeowners seeking to downsize for lifestyle and financial reasons remains strong; underpinning our belief in the long-term outlook for the business.
