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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:
This suited many prospective residents because it:
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:
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).
Please see the following pages of this Retirement Villages Guide for further information:
Please also see the following pages for further specific information regarding the particular application of the retirement villages laws in the respective Australian States and Territories: