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Retirement Village Departure Fees

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How are Retirement Village Departure Fees Calculated?

Retirement village exit fees are calculated by a percentage either of:

  • The entry price is the same, but a separate agreement will be made to allocate any capital gains, real or fictitious, that may occur when the property is sold, leased, or licensed to another resident
  • The resale value of the property when it is sold, leased, or licensed to a resident. This price takes into consideration any capital gains, real or nominal, that may occur.

The percentage is usually calculated over time, at a fixed or variable rate. It could, for example, accrue at 2.5% annually or at 5% annually during the first two years and 2.5% annually thereafter.

The percentage can be subject to minimums or maximums. It could be 10% minimum or 30% maximum. A maximum percentage can be described in terms of a certain number of years. AHow are Retirement Village Departure Fees Calculated departure fee, for example, that is accrued at 3% annually over a maximum period of 10 years has a cap at 30%.

No matter the legal structure of the property, capital gains are accrued if it is sold, leased, or licensed for a higher price than what the resident paid to enter the property. The operator retains or pays a portion of this capital gain.

The capital gain is already included in the calculation of the departure fee if it is based on the resale price. Therefore, no additional apportionment will be required. When the departure fee calculation is based on the entry price there will be a separate allocation of any capital gains. In some retirement communities, the operator keeps the entire capital gains, whereas in others, it’s shared. It may, for example, be split 50/50, 75/25, or 25/75.

The industry standard for departure fees is around:

  • The entry price is subject to a 2.5% annual rate, which can be capped at 25 % after 10 years, and any capital gains are shared 50/50.
  • The resale price is subject to a 3% annual increase, which is capped at 30 percent after 10 years.

In the event that a village charges a lower departure fee than another village, this does not necessarily mean the homes in the first village are more valuable than those in the second village. This is because, if all else is equal, the higher entry price of the former village could offset the difference. The reason for a departure charge varies according to the village’s legal structure and applicable legislation. In some villages, the operator is forced to charge a departure tax in order to recover certain costs. However, other villages may not require a departure tax because these expenses can be recovered through another means.

The key factors that influence the amount of the departure fee include:Retirement Village Departure Fees Calculated

  • The entry price
  • The rate at which the percentage fee is accrued
  • Minimum percentage rate
  • Maximum percentage rate at which fees stop accruing
  • The period of occupancy
  • The size of any capital gains that accrue during the period of occupancy
  • Basis for apportioning any capital gains.

Calculating the financial impact of different scenarios is the best way to understand how a departure fee structure functions. You may have to estimate how much you believe the market value of the property in the future will rise. It is a guessing game, but it’s reasonable to assume there will be an inverse correlation between the price of retirement villages and the residential property market.

The demand for housing will continue to increase as a result of demographic changes, such as the retirement and life expectancy of “baby-boomers” and the increasing number of seniors. The supply of housing may be limited due to the lack of suitable sites in central locations for new retirement villages.

Calculate your departure fees online for free with our Departure Fee Calculator

A free online departure fee calculator has been created to estimate the cost of a specific departure fee in different scenarios. (Link below).

Want More Information?

For more information, please see the following pages in this Retirement Villages Guide:

  1. Introduction

  2. Why are retirement villages so complicated, confusing and controversial?

  3. Financial considerations

  4. How are retirement village departure fees calculated?

  5. Why Are retirement village departure fees charged?

  6. Calculator for Free Departure Fee

  7. Top 10 Tips

  8. Rental Accommodation

  9. Pets

  10. Legislation

  11. The Retirement Village Guide

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