Retirement villages: Idyllic lifestyle can come at a cost

Liz Maroney, Westlawn Wealth Adviser specialising in retirement planning, superannuation, investing & aged care. Grafton, Yamba, Coffs Harbour, Lismore, BallinaBy Liz Maroney, Westlawn Wealth Adviser
9 September 2015

Retirement villages can have a lot to offer older Australians seeking to downsize the family home. Village living offers security, companionship and a peaceful lifestyle free of many of the laborious tasks of everyday life in the suburbs – like mowing lawns and sweeping paths. There’ll be more free time to do the things you enjoy: reading the news over a morning coffee; visiting the grandkids; hitting the bowling green or golf course; or whiling away those sunny afternoons casting a line at your favourite fishing spot.

But while village living may seem an idyllic escape for those seeking a more relaxed lifestyle in retirement … the financial and legal implications of buying into a retirement village are complex and need to be fully understood and carefully considered before making any decision to purchase.

Contract complexity

A retirement village contract is different to contracts most of us are familiar with when purchasing a residential home or apartment.

Depending on the retirement village, the operator may offer:

    • Freehold or strata title (similar to 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 for occupancy of a retirement village unit)
    • Company title, or
    • Rental agreement.

The most common retirement village contract is the lease or licence arrangement.

Contracts are often very complex and can vary significantly from one village to the next. Therefore, it’s important to get independent advice before signing any contract so that you fully understand both your legal rights and your legal obligations.

As an example, a contract may stipulate that when selling your retirement village home, you are required to sell through the village operator and pay them a commission. Or, a contract may even assign 100% of any capital gain to the operator. Some contracts may even require the owner to refurbish the unit prior to it going on the market.

You may also continue to be charged fees while you wait for your home to be sold.


Speaking of fees, understanding the often complicated fee structure of any contract is crucial. According to the Consumer Action Law Centre, the majority of retirement village complaints relate to fees. Therefore, it is recommended that you seek financial advice before purchasing a home in any retirement village.

Typically, there are 3 main fees retirement village residents will pay. These are:

    • Entry fees: This is the purchase price of your unit and is sometimes referred to as ‘ingoing contributions’.
    • Ongoing fees: These are generally charged weekly or fortnightly and cover ongoing management and maintenance costs. A rule of thumb is that you can expect to contribute $10 a day towards village running costs. Of course, the more facilities a village offers, the higher the ongoing fees will be.
    • Exit fees: This fee may be a set amount, but often it will be a percentage of the value of the unit at the time you leave.

You don’t buy into a retirement village to make money

The most common exit fee is the deferred management fee (DMF). This fee is calculated as a percentage per year of the value of the unit. For example, the DMF may be calculated as 3% per year, up to a maximum of 30% of the sale price. This means that if you move out after 5 years, the retirement village operator will receive 15% of the sale price of your unit.

Richard Andrews is a buyer’s advocate who specialises in helping clients purchase retirement village homes. He estimates that 90% of retirement village units are now occupied on long-term leases using a deferred management fee structure.

Andrews told Debbie McTaggart of Your Life Choices magazine that: ”You certainly don’t buy into a retirement village to make money. It’s a good outcome and I think a fair one if I can get a client in and out of a village within 10 years with their original capital intact.

”It’s a lifestyle choice and retirees need to keep that in mind,” Andrews said.

That lifestyle choice usually involves an increased range of services to enjoy, from spacious and well-maintained community centres, through to peaceful gardens and recreational facilities, such as swimming pools. And then there’s the peace of mind that comes from having higher levels of security (such as 24 hour emergency support). But remember, the more facilities you have to enjoy, the higher your ongoing costs are going to be for the maintenance of those facilities. So, if you’re attracted to a particular retirement village because it has a pool, ask yourself honestly whether you are going to swim in it regularly.

Discuss with your family & seek professional advice

Whether retirement village living is the right choice for you will depend on your individual circumstances. For many, the sense of security and companionship are very attractive. It is, however, important that you first discuss it with your family (as the case study below illustrates) and also seek professional advice in regards to the complex legal obligations and financial consequences of signing any contract.

If you are considering a move into a retirement village, please give me a call on 02 6642 0433 to discuss your options.

Lengthy sale period proves costly

When Graham and John’s mother needed to move from her retirement village unit into an aged-care facility on the same site, the brothers were shocked to discover a big gap between what she’d get from the sale of her unit and the bond she’d have to pay the same operator.

The unit that cost $146,950 in November 2001 – and which finally resold for $240,000 in May 2010 – left them with just $136,173.

It was well short of the accommodation bond of $210,000 the hostel would have required if the health of their mother, hadn’t deteriorated in the meantime.

She passed away in June 2009, in a high-care facility where no bond was required, with her unit still on the market.

The unit’s keys were returned to the village operator by the brothers in November 2008 as their mother went into care but a sale wasn’t settled until August 2010.

The deferred management fee (DMF) came to $48,381 and the “comprehensive upgrade” they agreed to after the unit lingered on the market cost $49,422.

The family’s lawyer acknowledged the fee was in accordance with the contract signed for the unit but argued the DMF was “excessive” considering the time that elapsed between handing in the keys and final settlement – and with the family having no control over the sale process.

The operator wouldn’t negotiate, Graham said. “They had no intention of doing anything other than sticking strictly to the conditions of the contract.”

Under the contract, the DMF was set at 3% of the original licence fee (in effect, the purchase price) or 3% of the new licence fee (the selling price), whichever was greater, for every year of occupancy up to 12 years.

If the unit had been occupied for 3 years or less, the fee would have been 10% of the ingoing price or the resale price, whichever was greater.

Source: Lifestyle’s hidden costs. Sydney Morning Herald, 16 February 2011

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