To live in a retirement village, a prospective resident enters into a contract with the village operator.

All retirement village contracts deal with a number of issues including the nature of the tenure (in particular long term lease, purchase or rental), and costs associated with moving into, living in, and leaving the village.

For people moving from their own home into a retirement village, the contract and financial model used, can seem unusual or complex. A retirement village contract is different to contracts used to purchase a regular residential home or apartment.

One size does not necessarily fit all, either for retirement village residents or village operators. By negotiating a contract with the operator, the right ‘fit’ between upfront and exit costs can be found for both parties.

The village operator may offer:

  • Freehold or strata title (which operates in much the same way as a traditional residential property, in that the title to the unit is held by the resident)
  • Lease or licence (where the resident pays an upfront entry fee, often known as an ‘ingoing contribution’, for occupancy of a retirement village unit, for a specified period of time)
  • Company title
  • Rental agreement

The lease or licence arrangement is the most common form of retirement village contract. The lease or licence tenure is secure, owing to the residency contract and government legislation designed to protect residents’ rights.

For further information on the legislation that applies within your State or Territory, please visit: Seniors Living – Seniors Care

The resident usually decides how long they want to live in the village, not the operator.

The in-going cost will vary and is based on many factors, including the age and quality of the unit, and the location and facilities in the village.

SERVICE AND MAINTENANCE FEES

A major benefit of living in a retirement village is the increased range of services available.

These range from well-maintained community centres, through to manicured gardens and recreational facilities.

A further benefit for most is the peace of mind that comes with higher levels of security. For example, many villages have 24 hour emergency support available, should it ever be required.

Village residents usually pay for their services and maintenance via a monthly or fortnightly fee that covers the costs associated with providing the lifestyle and services available in their village.

Instead of having to pay a variety of bills relating to the cost of residing in your own home, one payment takes care of most costs including, in many instances, building insurance, water rates and council rates. When looking for a retirement village, it is important to ask the sales consultant about what is and what isn’t included, in the service fees.

Village operators generally charge service fees on a cost recovery basis. Retirement village legislation in most States and Territories contains protections and controls to ensure residents are kept informed about the costs included in the service fees, and any changes to those costs over time. Costs will vary, depending on the extent and age of communal facilities and the type of services provided.

In freehold title retirement villages, residents may also be required to pay owners’ corporation levies or body corporate fees in addition to the service and maintenance fees.

EXIT FEES & EXIT ENTITLEMENTS

The ‘exit fee’ or Deferred Management Fee (DMF), which is charged by the majority of retirement villages, is a payment model that is unique to the retirement village sector.

As such, its purpose is often misunderstood.

The ‘exit fee’ helps to compensate the village owner for the cost of building the village, and allows the resident to part-pay for this, at the end of their residency, rather than the start. The ‘exit fee’ is designed to ensure the entrance price (‘entry fee’) into the village is more affordable. Retirement village units are often priced lower than comparable homes in the same area. It is wise to perform your own comparative check regarding this assertion.

The ‘exit fee’ is designed to give purchasers flexibility in how they pay for the investment made by the owner of the village. Some prospective residents may not be able to afford to pay full market price for a village unit when they move in, and are happy to pay for some of the value of their residency, by way of a larger amount retained by the village operator (‘exit fee’), when they move out.

This payment is often a percentage of the ‘entry fee’, or the entrance price, and is agreed to in the negotiated contract. The ‘exit fee’ is paid to the operator when a resident leaves the village.

A resident who leaves a village may also receive an amount from the operator when the unit is sold to a new resident. Known as an ‘exit entitlement’, the terms used to calculate this amount is also documented in the resident’s contract.

The ‘exit fee’ is commonly calculated as a percentage paid per year of residency, and is capped at a maximum, for example, 2% per year capped at 20% after 10 years. It may be calculated on the in-going cost that the resident paid, or the amount the unit is sold for when the resident leaves.

The calculation method varies between providers, and may even vary within a village, as different residents opt for different payment options.

The amount agreed to be paid by a resident upfront (the ‘entry fee’) or upon leaving (the ‘exit fee’) can also alter the share of capital gain the resident is entitled to. It is up to the prospective resident and the operator to agree upfront, to an ‘exit fee’ that both parties consider fair, and is a reflection of the value of village life.

The parties can also agree whether the resident receives all, some, or none of the capital gains on their unit when they leave the village. Whether a resident receives a share of the capital gain often affects the ‘exit entitlement’.

When looking at a retirement village, the sales consultant will be able to provide you with an explanation of their ‘exit fee and entitlements’. You may wish to have these reviewed by your financial adviser or accountant, before signing any contracts.

Please use our Business Directory Search facility if you require assistance in finding ‘Retirement Villages’, ‘Financial Planners‘ or ‘Solicitors in your local area.