Retirement Village Fees & Charges

Living in a retirement village is a great lifestyle choice for retirees. You have to pay for this lifestyle however, as it brings with it a variety of fees and charges that you would typically not encounter living in your own home.

Note that although many of the more substantial fees and charges do not become payable until you leave the village, it is important to understand them up-front when you sign the purchase contract so you can gauge the impact they will have on your financial outcome at exit.

I have grouped the fees and charges into three categories to make it easier to understand the context of their application and when you can expect to pay them. The three elements are purchasing costs, living costs and exit costs.

Purchasing costs
Purchasing costs are those costs associated with the purchase of your retirement unit:

Expression of interest
The first cost you are usually faced with is an expression of interest charge, where you pay the village operator a small sum of money to place a hold on the unit you have selected to buy. It is a small fee of usually only a couple of hundred dollars and is fully refundable in the event that you decide not to proceed. If you do proceed, the charge is usually put towards your deposit.

Deposit
Once you have selected a retirement home you will need to hold that property by lodging a deposit with the vendor. The deposit is typically a notional amount of around $1000-$5000, and should be fully refundable in the event that either you or the village operator withdraw from the contract. The deposit amount will come off the sale price of the property when the purchase is settled.

Ingoing Contribution
A fee unique to the DMF scheme is what is known as an ingoing contribution. This is the amount payable under the contract to secure the right to reside in the retirement village. It is really just a fancy name for the purchase price and is a one-off payment, not a recurrent fee. Interestingly, the ingoing contribution is actually structured as a loan made by you to the village operator, albeit unsecured (except by the licence or loan you have received to occupy your unit) and interest free! It is structured in this way to reduce the operator’s taxable income. So don’t be confused if when reading your contract you find references to a loan, as this simply refers to your ingoing contribution.

Contract preparation costs
Another charge at the time of purchase is the apportionment of legal expenses incurred by the village owner in the drafting and execution of your purchase contract. Some village operators charge you a contract preparation fee when you first enter the community and then another fee when you leave! This charge is usually around $1000.

Stamp duty
Stamp duty will usually be applicable to the purchase of freehold title to a piece of land. The village sales agent can advise in the first instance as to what the applicable state calculation is. Double-check this with a solicitor if you are unsure.

GST
GST is payable on the freehold purchase of newly built dwellings only, although this will simply form part of the purchase price. There is no GST payable on DMF contracts.

Living costs
The living costs are those fees and charges associated with your stay in the village. These are regular fees charged on a weekly, monthly or quarterly basis:

Village fee
The village fee is also known as the general services fee or general services charge. This is a regular fee charged to each resident for the funding of costs such as grounds and maintenance, on-site management, insurance and security. Obviously the more services and facilities offered by a village, the higher the charge is likely to be. Conversely, large villages with many units are able to spread the costs over more residents so the fee is likely to be lower. The village fee is the portion of the annual operating budget for the village that is paid by the occupant of an identified ‘lot’, or unit.

As a rule of thumb, the fee usually equates to around $100 a week per unit, although it will be higher in villages with more facilities. Leasehold schemes may also have a higher fee as it will include a rent component for the land.

A resident is obliged to continue paying the village fee until such time as the unit is resold. This means that if you move out of your retirement unit, for whatever reason, and it takes six months to resell the unit, you will be obliged to pay the charge over the six months your unit is vacant. Some states have now capped the fee liability time in their retirement villages legislation.

Body Corporate or Owners’ Corporation fee
The owners corporation or body corporate fee is similar to the village fee in what it covers but is associated with strata-titled freehold properties only. The corporation is usually obliged by law to set annual budgets for administration and sinking funds, and there should be a reference to the dollar amount set, for example for independent engineering reports. Otherwise the budgets are set annually using the previous year’s actual spending amounts with a CPI increase, with the addition of any new spend initiatives.

Personal services (or services) charge
If a village resident wishes to buy additional services from the operator, such as cleaning, laundry or meals, then the cost for this service is negotiated directly between the resident and the service provider, which could be either the village operator or an external supplier. There may be a contracted time period for the services or a cancellation notice period.

Exit costs
Exit costs are those charges due and payable when you leave the�village:

Refurbishment costs
Outgoing residents are obliged to fund any necessary refurbishment costs. This is not a fee as such, but rather a contractual obligation for residents to fund the return of their unit to a marketable condition when they leave. A ‘marketable condition’ means the same general condition as when you first moved in and comparable to other units for sale in the complex. Retirees are usually gentle on their residences so it is unlikely the cost of any refurbishment will be significant. Typically a fresh coat of paint and new carpet, plus repairing any broken fittings, is all that is needed. An average cost for this work would be around $5,000-$10,000, unless the unit is more than 20 years old and needs to upgrade fittings and cabinetry.

Sales commission or marketing costs
Another fee at exit is the sales commission paid to the selling agent, or the refunding of costs incurred by the village operator in marketing your unit. Larger villages typically have their own sales agents located in a sales office on site. However, unless their contract states otherwise, residents should be free to appoint any agent to sell the unit or even to do it themselves.

Deferred Management Fee
The deferred management fee (DMF), also known as the exit or departure fee, is found in loan/lease or loan/licence contracts, as well as some freehold contracts. The DMF is an annual fee charged for each year of occupancy, capped at a set number of years, and calculated as a percentage of either the original purchase price or the subsequent resale value of the lease or licence. The fee is accrued annually at each anniversary of the resident’s commencement at the village, and paid out to the village owner from the proceeds of the resale of the unit. The fee varies between villages, within villages and also between states. If you want to learn more or understand how this fee is calculated, check out this post on my blog.

Sharing capital gain on sale
Under deferred management fee purchase contracts, residents may be obliged to share any capital gains with the village owner on the resale of their unit, or even entirely forfeit them. Generally, if the fee is calculated on the exit price, there should be limited or no capital gains payable. Most contracts contain a 50/50 split of capital gains, although some owners have been known to take 100 per cent. Just to be clear, this is in addition to the deferred management fee. However, there are no laws governing this and village operators are free to choose whichever structure they prefer.

Maintenance Reserve Fund
Some contracts oblige a departing resident to pay a percentage (usually around 2-3%) of their original purchase price or re-sale value into a maintenance reserve fund. This fund does not go to the operator’s bottom line, but rather goes into a kitty contributed by all residents that is used to fund upgrade works.