Learn more about fees and charges
Before you move into a retirement village, you will enter into a contract with the retirement village operator. Retirement village contracts are complex and deal with a number of issues including the nature of the tenure you acquire in the property, such as whether it is a long term lease, property purchase or rental agreement.
There are costs associated with each stage of retirement village living (when you move into, live in, and move out of a village). These costs are set out in the contract and may be difficult to assess. This is because retirement villages use a wide range of fees and charges, with different timings.
Before entering into a retirement village contract you should consult a legal professional for advice.
Entry fees
Entry fees are the fees you pay when you enter a retirement village.
The entry payment is a large one-off amount you pay for the right to occupy your unit and may also be called an ingoing contribution, purchase price or assignment fee.
The form of this payment will depend on the type of ‘title’ or ‘tenure’ you are acquiring in your unit. The different types of arrangements are:
- freehold or strata title - this operates in the same way as a traditional residential property purchase. The title of the property is owned by the resident.
- loan or licence arrangement - the resident is entitled to live in the unit, but they do not own the property. This is the most common form of contract.
- leasehold arrangements – the resident leases the unit from the operator. However, the lease is registered on the title deed, which gives the resident added protection if the unit is sold.
- company title – the village is owned by a company and the resident purchases shares in that company. The shares give the resident a right to occupancy.
- rental agreement - this is where a resident rents the property. They sign a tenancy agreement and pay rent like other tenants in the general community. Generally these agreements contain a clause excluding you from the retirement village laws.
If you are buying the unit (such as in a strata scheme) you will pay the agreed purchase price to the seller. If you are not going to own the unit, you will be required to pay the operator an entry payment in some form, for example, an ingoing contribution or interest-free loan.
The entry payment will vary depending on the age and quality of the unit, and the location and facilities in the village.
In addition to the entry payment, the operator may require you to pay other entry fees. These are additional one-off payments and may relate to the cost of a separate garage, parking space or furniture that comes with the unit.
For more information about different retirement village contractual arrangements read the Types of retirement village arrangements page on the NSW Fair Trading website.
Ongoing fees
The ongoing fees are the fees you pay while living in the retirement village. They cover the cost of running the village and providing services to the residents.
The ongoing fees or ‘recurrent charges’ are:
- paid to the operator on a regular basis, for example, weekly or monthly
- based on the annual budget for the village, divided among the residents.
The services these fees usually cover include village facilities, like village management, insurance fees and maintenance costs related to facilities at the village such as a gym, pool or gardens. They may also cover additional services which are made available to all residents, such as 24 hour emergency support.
Ongoing fees that cover services available to all residents are payable by all residents and are usually referred to as ‘recurrent charges for general services’ in village contracts.
In some villages, additional services such as meals, cleaning and laundry may be available to residents. Residents are only charged for these services if they opt to receive them. These fees are usually referred to as ‘recurrent charges for optional services’ in village contracts.
Always ensure any additional services advised or offered by the retirement village are listed in the disclosure statement or contract. This can prevent confusion and will assist in the event of a dispute.
In strata or community title retirement villages, residents may be required to pay strata or community levies in addition to service or maintenance fees.
For more information about ongoing fees, read the Recurrent charges page on the NSW Fair Trading website.
Exit fees
Exit fees are those you will need to pay to the operator when you leave the retirement village. These fees can be a significant amount, so it is important to check your village contract to make sure you understand how they apply to your individual circumstances.
The main exit fee you may need to pay is the ‘departure fee’. However, you may also be required to share any capital gain with the operator or pay other exit costs, such as costs to reinstate your premises to the condition it was in when you moved in less fair wear and tear, depending on your contract.
Departure fee
Most retirement village contracts will require you to pay a departure fee when you move out of a retirement village. This is also known as an exit fee or a deferred management fee.
The departure fee model is used by most retirement villages. It is not used in any other sector and therefore often gives rise to confusion.
Departure fees can be a significant amount, so it is important to check your village contract to understand how your departure fee is calculated. Seek legal advice or financial advice before entering into a retirement village contract to better understand your rights and obligations.
Purpose of departure fees
Departure fees are a source of income for operators which can be used for other purposes not covered by recurrent charges, such as improving or expanding the services and facilities at the village. Departure fees also allow for lower recurrent charges and greater flexibility in regards to entry prices. This provides more people with access to retirement villages.
The departure fee is designed to give purchasers flexibility in how they pay for the investment made by the owner of the village. It can allow prospective residents to pay a lesser upfront payment by agreeing to an amount being retained by the operator when they leave.
This payment is often a percentage of the ingoing fee, or the sale price, and is agreed to in the contract upfront. The fee is paid to the operator when a resident leaves the village (and is usually deducted from the sale price of the unit).
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.
For more information, read the Leaving a retirement village page on the NSW Fair Trading website.
How are departure fees calculated?
The departure fee is commonly calculated as a percentage paid per year of residency, and is generally capped at a maximum, for example, 2% per year capped at 20% after 10 years. It may be calculated on your entry payment, or the amount the next resident pays to move into your unit when you leave (the ‘new entry payment‘). The calculation method varies between operators, and may even vary within a village, as different residents opt for different payment options.
Consider these two examples as the way a departure fee may be calculated:
| Example One | John & Betty | Albert & Cathy |
| Entry price | $400,000 | $400,000 |
| Length of stay | 10 years | 10 years |
| Departure fee structure (Percentage of entry payment) |
|
|
| Departure fee % after 10 years | 26% | 29% |
| Annual property increase | 5% | 5% |
| Capital gain | $251,558 | $251,558 |
| Sale price (in 10 years) | $651,558 | $651,558 |
| Departure fee payable on the entry price | -$104,000 | -$116,000 |
| Return to resident | $547,558 | $535,558 |
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 payment.
Again, consider these two examples:
| Example Two | John & Betty | Albert & Cathy |
| Entry price | $400,000 | $400,000 |
| Length of stay | 10 years | 10 years |
| Departure fee structure (Percentage of entry payment) |
|
|
| Departure fee % after 10 years | 26% | 29% |
| Annual property increase | 5% | 5% |
| Capital gain | 50/50 share | 100% to resident |
| Sale price (in 10 years) | $251,558 | $251,558 |
| Departure fee payable on the entry price | -$125,779 | -$0 |
| Return to resident | $421,779 | $535,558 |
When looking at a retirement village, ask the sales consultant to explain how the departure fee is calculated and seek independent legal and/or financial advice.
For more information on departure fees, read the Departure fees page on the NSW Fair Trading website.
For more information about other costs you may need to pay when leaving a village, read the Leaving a village page on the NSW Fair Trading website.
FAQS
What is the difference between the ‘Basic Calculator’ and the ‘Detailed Calculator’?
The basic calculator gives a simple estimate of the costs involved in retirement village living. To use the basic calculator, prospective residents only need to know the suburb (or postcode) they’d like to live in and how much they’d like to spend. The calculator uses that information and applies various assumptions based on the “typical” or “average” resident of a retirement village in NSW to calculate costs estimates. For example, the basic calculator assumes:
- the contract type is a loan/licence arrangement,
- the departure fee is 3% per year over 12 years, and
- the operator and resident will share capital gain equally (50%/50%).
These assumptions have been based on publically available information in the Productivity Commission report ‘Housing Decisions of Older Australians’, and the Property Council Census. Applying these assumptions reduces the amount of input required from the prospective resident. This allows prospective residents at the early stages of decision-making (or with very limited information about their preferred village) to use the calculator to gain a basic estimate of the costs involved in retirement village living.
The detailed calculator provides a more comprehensive estimate of the entry, ongoing and exit costs associated with retirement village living. To use the detailed calculator, prospective residents must have a copy of the standard fees and charges table found in the disclosure statement provided by a village operator.
The detailed calculator asks a series of questions about the specific fees and charges contained in a resident’s standard fees and charges table. It uses those fees and charges to calculate a number of different cost estimates over varying time periods. In doing so, the detailed calculator also applies assumptions about certain factors that might occur over the time that you live in the village (but applies fewer assumptions than the basic calculator given the user has provided more detailed information based on the standard fees and charges table). For example, it assumes the amount by which your unit will increase in value over time and assumes that your recurrent charges will stay the same over the time that you live in the retirement village.
Both calculators can be used to better understand the financial costs of retirement living, and to compare different villages.
See What assumptions do the calculators make? below, for more information.
How do I get a copy of a disclosure statement and standard fees and charges table?
An operator must provide a disclosure statement when a prospective resident expresses interest in a unit in the village or when they request a copy. The standard fees and charges table is contained within the disclosure statement.
You may have already received a general inquiry document from the operator when you first made an enquiry about the village. The disclosure statement contains more detail about the specific financial arrangements that apply to that unit.
Do the calculators cover all fees and charges in retirement villages?
No. The calculators cover the main fees and charges that you are likely to encounter when entering, living in and leaving a retirement village. These include any payment made to enter the village and start living in your village, on-going fees for maintenance and services and any departure fees that must be paid when you permanently leave the village.
However, the calculator does not cover all possible fees and charges, including:
- any ‘reinstatement costs’ you may be liable to pay under your contract when you leave the village
- any sales commission or agency fees that may be payable to market and sell your unit
- the cost of any renovations you may do to your unit before selling it to maximise the sale price (similar to if you were selling any other property type) e.g. upgrades to the kitchen or bathroom
- any costs associated with seeking legal or financial advice before entering into a contract
- any increase in recurrent charges for general or optional services over time.
- utility charges not included in recurrent charges.
- interest on any loan used to fund entry into the retirement village
- any fees associated with the purchase of shares for company titled retirement villages, or membership fees.
There may be other costs associated with retirement village living and it is important to always seek your own professional advice that takes into consideration your personal circumstances.
How accurate are the estimates provided by the calculators?
The calculators use the best available information and assumptions to help generate easy-to-understand cost estimates. However, the figures produced by the calculator are indicative estimates that are intended to increase awareness about the financial implications of different village contracts. The calculators do not attempt to provide actual costs that you may incur and do not constitute financial (or legal) advice.
How do the calculators estimate how much the price of a retirement village unit will increase?
The calculators use Australian Bureau of Statistics data on the median house price of established and attached dwelling transfers for Sydney and ‘Rest of NSW’ (Catalogue 6416.0 – Residential Property Price Indexes: Eight Capital Cities).
This data is used because the growth rate for retirement village units is assumed to be equal to the growth rate of residential property. This is consistent with estimates that show the median price of a retirement village unit is roughly 10 to 20 percent lower than the median price of residential property at any point in time. As a result, over time the growth rate for residential property and retirement village units should increase proportionally in order for the 10 to 20 percent median price difference to continue to hold.
What assumptions do the calculators make?
| Assumption | Basic Calculator | Detailed Calculator | |
| Contract type | Loan/Licence arrangement | Yes | No |
| Departure Fee | 3% per year over 12 years based on the entry payment | Yes | No |
| Capital growth rate | ABS data on the median house price of established and attached dwelling transfers for Sydney and ‘Rest of NSW’ – as applicable. | Yes | Yes |
| Capital gain share | 50% to operator / 50% to resident (gain and loss) | Yes | No |
| Recurrent charges | No increase over time | Yes | Yes |
| Optional services | No optional services included | Yes | No |
| Time to sell | 283 days | Yes | Yes |
When are the assumptions updated in the calculators?
The assumptions used in the calculators are updated on a yearly basis.