What are Retirement Village Departure Fees For?

Although they are complicated, confusing and controversial, departure fees (which are sometimes called "exit fees", "deferred management fees" or "DMFs") have a sound historical rationale and they're not all bad, provided you understand what they are for and take them into account when deciding whether a particular home offers overall fair value compared to similar homes in other retirement villages and in other similar property situations, such as strata title or community title developments that are not retirement villages.

Historically, departure fees allowed retirement village operators to:

• take responsibility for the depreciation and eventual replacement of capital items
• sell, lease or license homes for an entry price below the fair market value of the home.

This suited many prospective residents because it:

• removed the risk of large unexpected capital expenditures
• allowed them to live in a home that they may not otherwise have been able to afford
• preserved some of their capital for living and lifestyle expenses.

So far so good, but if prospective residents don't realize that there is a departure fee, or don't understand how big it could be, or don't care because they figure they'll be dead anyway, then they are more likely to be willing to pay the full fair market value of the home. If they do that, then at the village level, any surplus that remains after the operator meets its obligation to replace capital items is pure profit for the operator.

Given the range of legal structures, the range of departure fee structures, the complexity (and at least historically, the very poor quality) of the legal documentation, the relative scarcity of lawyers and financial advisors with appropriate experience and the age and declining capacity of some new residents, it is not surprising that many people are unprepared for the eventual financial outcome, to their detriment.

Children and other beneficiaries of the estate of a deceased resident who are not aware of the financial arrangements will inevitably be disappointed no matter what because they will get less from the estate than they thought they would.

So when you consider moving to a retirement village that has a departure fee, it is very important that you:

• understand how the departure fee is calculated and how much it could be, assuming different periods of occupancy and different rates of growth in the value of the underlying property
• understand what expenses the operator must recover from the departure fee that it is not otherwise able to (or chooses not to) recover through the ongoing recurring charges (which largely depends on the particular legal structure of the village and the applicable legislation)
• compare the entry price with similar homes in other retirement villages and in other similar property situations, such as strata title or community title developments that are not retirement villages
• consider keeping your loved ones in the loop so that they also understand the financial arrangements.

Try Our Free Online Departure Fee Calculator

We have set up a free online Departure Fee Calculator that can estimate how much a particular departure fee could be in a range of scenarios (link below).

More Information?

Please see the following pages of this Retirement Villages Guide for further information:

1. Introduction and Overview
   
   

2. Why Are Retirement Villages So Complicated, Confusing and Controversial?
   
   

3. Financial Considerations
   
   

4. How Are Retirement Village Departure Fees Calculated?
   
   

5. What Are Retirement Village Departure Fees For?
   
   

6. Free Departure Fee Calculator
   
   

7. Top 10 Tips
   
   

8. Rental Accommodation
   
   

9. Pets
   
   

10. Legislation
    
    

11. The Retirement Village Handbook