There’s been plenty of publicity and conversation surrounding retirement villages of late, specifically regarding the complexity of contracts and high exit fees charged.
This has sparked much conversation, both in parliament and the wider community, regarding the way that retirement villages are operating and whether the surrounding legislation that governs them is adequate.
If you’re retired, or approaching retirement, and considering moving to a retirement village, you might be thinking twice. But it’s important to note that not all retirement communities have complex contracts or charge exit fees. Here’s a 5-minute read to help you understand the retirement village scandal in Australia so you can spot the traps, avoid the pitfalls and find the best retirement living option for you.
Why the Controversy?
A recent Four Corners and Fairfax investigation sparked the current debate, when it highlighted examples of retirement village operators who they claimed were “putting profits before people”. Many residents shared stories of feeling trapped by complex contracts and unable to sell their retirement village homes as the exit fees they’d have to pay would financially cripple them.
The problem of retirement village contracts and exit fees is nothing new – in fact, as far back as 2007, a federal parliamentary committee made several recommendations to improve the rights of residents in retirement villages. The committee cited the appointment of an ombudsman and for the ACCC to investigate whether exit fees should be banned entirely – but the recommendations were not followed.
But now, in light of the recent debate, the Minister for Aged Care, Ken Wyatt has said he will “revisit that report, look at what the detail was, and then look at what options I can take forward”.
Complex Contracts
At the heart of the problem is the complexity of most retirement village contracts. Gerard Brody, Chief Executive of the Consumer Action Law Centre has even described some village contracts as the worst he has ever seen. There are three main types of contracts offered by retirement communities. Most retirement villages offer a strata title or leasehold arrangement. A strata title sees you purchase your home for an agreed price, and you’ll often also pay ongoing corporation fees, a monthly or quarterly maintenance charge, and exit fees should you decide to sell. A leasehold contract usually requires you to pay an ongoing contribution as part of the lease, plus, you may also be required to pay regular maintenance fees and exit fees.
Confused about contracts and other village questions? Download our free guide, 20 Questions You Must Ask BEFORE You Choose a Village…
The other option is to choose a retirement community that operates under the Residential Tenancies Act and offers a rental agreement. With this type of contract, you’ll own your home and pay rental on the land. Some communities that offer rental agreements, including Village Lifestyle Park, don’t charge maintenance fees or exit fees – which means you won’t lose a large portion of your profits if you choose to sell your home.
Exit Fees
For many of the dissatisfied retirees featured in the investigation, exit fees were their biggest concern – which is not surprising, considering they can cost you tens, or even hundreds, of thousands of dollars when you sell. Also known as deferred management fees or departure fees, exit fees are included in many retirement village contracts and it’s important to understand the implications of this type of fee before you sign.
Exit fees are payable when you sell your retirement village home and are calculated as a percentage of your sale price. Individual village operators can set their own percentage, and these are typically 25-30% – but can be higher. They are generally scaled to the number of years you have been a resident and will also be passed on to the next owner of your home – which can be off-putting to potential buyers. That’s why it is strongly recommended that you seek independent legal advice before you sign any contract.
…it is strongly recommended that you seek independent legal advice before you sign any contract.
The Differences Between “Retirement” and “Lifestyle” Villages
There’s an important distinction between the concepts of retirement and lifestyle villages.
If you choose to live in a lifestyle village, your legal rights, contractual obligations and the fees you pay will be vastly different from those of a retirement village resident.
Each village will have its own fee schedule, but in most cases, a retirement village will charge an incoming fee, ongoing maintenance fees and a deferred management fee when you exit, which could be up to 30% of your sale price. On the other hand, most lifestyle villages (including Village Lifestyle Park) do not charge deferred management fees. Instead, you’ll pay a purchase price on your house and ongoing rental on the land – but importantly if you choose to sell, all of your sale proceeds are yours to keep, and you do not need to hand over a large percentage to village management.
… most lifestyle villages (including Village Lifestyle Park) do not charge deferred management fees.
In Closing
Moving to a retirement community can bring many benefits and have a positive impact on your lifestyle. However, because some retirement village contracts are complex, and include hefty fees, you should always do your research and seek legal advice to avoid the traps.
If life in a retirement community appeals to you, don’t be put off – there are many operators who offer contracts and homes that don’t come with the baggage of exit (or entry) fees. Just be sure to do your research and understand your obligations before you make a decision.
Over to You
Have you got a question or comment about the recent scandal, or contracts or fees in retirement villages and communities? We’d love to hear from you.
Want to know more about deferred management fees and other traps related to lifestyle villages? Download our FREE guide, 20 Questions You Must Ask BEFORE Choosing a Village.
Award-winning Managers Geoff and Sylvia McGuiness take care of the day to day running of Village. They love helping people find the Village home that's just right for them.
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