Life in a retirement villages is satisfying and comfortable for the overwhelming majority of residents – in fact a national survey conducted by McCrindle Research confirmed 98 per cent of all residents are satisfied with their village, writes Mary Wood, a former executive director of the Retirement Living Council.
For many thinking about the move to retirement villages, and indeed for some existing residents, the fee types and structure can be complex and hard to break down.
This article serves as a brief explainer for some of the different fees you may encounter and questions to ask to simplify the moving process as much as possible
While this is intended as a guide, as with any decision of this type, you should consult your financial advisor, accountant or lawyer before making any decision so as to ensure you fully understand the costs and structure of any agreement entered into. Involving your family in the decision is also a good idea.
Entry Fees
A retirement village contract is different to contracts used to purchase a regular residential home or apartment.
One size does not 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 operator may offer:
- Freehold or strata title (operating in much the same way as a traditional residential property in that 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 – this is the most common arrangement)
- Company title
- Rental agreement
Service or maintenance fees
A major benefit of living in a retirement village is the increased range of services that residents enjoy, from spacious and well-maintained community centres, through to pristine gardens and recreational facilities.
This is funded through a recurring service or maintenance fee, normally paid fortnightly or monthly. Instead of worrying about a multitude of bills relating to the cost of residing in your own home, this easy recurring payment takes care of most costs including, in many instances, building insurance, water rates and Council rates. Service fees are typically levied on a budgeted ‘cost recovery’ basis, with no ‘profit’ component to the village operator.
The cost of this fee will vary, depending on the services offered in the village. Retirement villages legislation in most states contains protections and controls to ensure residents are kept informed about the costs included in the service fees and changes to those costs over time.
Operators may also charge residents for the provision of ‘optional services’, where services are offered to individual residents, such as the provision of meals, laundry services and the cleaning of a resident’s unit.
In a freehold or strata title village, residents will instead pay owners corporation contributions: these are monthly or fortnightly charges that each resident unit owner pays to the owners corporation (which is comprised of all unit owners in the village, acting as one body).
[pullQuote]“One size does not 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.”[/pullQuote]
These recurring fees do not include ‘unit specific’ fees, such as the costs of maintenance, repairs and replacements for their unit and any items they own inside it, and utilities and services separately provided to the resident’s unit (such as electricity, water and telephone costs). These apply in much the same way as they do for an ordinary home in the community.
Exit fees
The exit fee – which is used 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, and designed to ensure the entry price is more affordable.
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 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, and is then deducted from the sale price of the unit – so in a case where the unit sells for $400,000 and the exit fee is 20%, the resident receives $320,000.
The parties can agree whether the resident receives all, some, or none of the capital gains on their unit when they leave the village.
What else should I know about Retirement villages?
As a starting point, make sure to ask these questions of your village operator when you’re thinking of making the move:
- What are the retirement villages rule and regulations?
- How are any increases in the maintenance fees calculated?
- What’s covered in the maintenance fee and what isn’t?
- How will my exit fee be calculated?
- What happens if I can no longer afford my maintenance fee? Retirement villages operators may have contingency plans to assist you in these circumstances.
- Is future development planned at the village?
- What’s the process for dispute resolution?
- Is there a residents’ committee I can join, and what say can I have in the running of the retirement villages?
What should be included in my contract before I sign?
- A clear explanation of all fees and who pays them, and explanation of how or why fees may increase in future
- What the exit fee structure is
- A list of services received and facilities you can access
- An outline of the dispute resolution process
- Requirements on signing power of attorney over to the operator
- How much capital gain on the property you can keep upon its sale
Retirement village regulations mean your contract may be slightly different depending on which state you live in – another reason to get help from family and a solicitor before signing any contract.
More great reading is available at Retirement Villages – Contracts
Retirement Living Council
The Retirement Living Council is the only national organisation solely focused on advocating on the critical issues facing housing and services for older people, supporting and promoting members and the retirement living industry at large.
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