Exit Fees

When buying a right to reside in a villa or apartment in a retirement village, residents also gain access to common facilities, such as a community centre.

The community centre often includes spacious lounges, dining rooms, sports bars and games rooms, gyms and sometimes even a pool, not to mention beautifully maintained gardens and grounds and often a bowling green.

These facilities are available for use by residents, family and friends, usually for no cost other than the regular service fees paid to cover the cost of providing and maintaining those facilities.

As the service fees are for the recovery of cost only, you do not need to pay the village owner any additional amount representing the owner's return for building these facilities and providing to you the outstanding lifestyle available at the retirement village until you actually leave the village. This amount is paid as an 'exit fee', which can also be referred to as a 'departure fee' or 'deferred management fee' (DMF).

The DMF payable by a resident is usually calculated with regard to the number of years of the resident's occupancy at the village (for example, 2.5% per year of occupancy). It varies between providers. It is either calculated on the basis of the entry fee (or purchase price) of your villa or apartment or on the sale price paid by a new resident for the right to take over your unit.

The annual DMF percentage can range from 2.5% to 6% of the relevant amount, and is usually capped when the period of occupancy reaches a certain number of years (often between 4 and 10 years). As a general rule the higher the annual percentage, the lower the number of years over which the exit fee is charged.

It is important to take into account the fact that the average stay in a retirement village is around 10 years, which means that while the annual DMF percentages and the period over which they apply can vary, the result is often similar.

Consider these two examples:

Some providers choose to calculate the DMF based on the entry or purchase price of the villa or apartment. In such cases, the 'capital gain' occurring on the re-sale of the villa or apartment to the new resident may be shared between the provider and the resident (with each party entitled to, say, 50% of that capital gain). Again the result can in fact be quite similar despite the appearance of a very different basis for the calculation.

Consider these two examples:

There is a wide variety of exit fee and capital gain sharing arrangements across the retirement throughout Australia.

When looking at a retirement village, the Sales Consultant will be happy to provide you with an explanation of their exit fee.