Deferred Fee

retvill logo villageRetirement Village Deferred Management Fee



The retirement village industry and particularly operators use the terminology that you pay the deferred management fee only on departure. Operators like this because it sounds better and sells better when something is way off into the future. You will not have ownership of the property even though you are paying a commensurate cost as if you were taking ownership, you are paying this large sum of money for just a right to live in the property.  The reality is that you write the cheque before you move in not when you move out, the operator simply performs a magic trick naming it an in-going amount on the way in and naming it a deferred management fee on the way out.

Retirement village operators will defend the deferred management fee structure on the basis that every resident should make a contribution toward the village communal hall and recreational facilities. What they fail to detail however is that they get a contribution (deferred management fee) from every new resident over the entire life of the village.

For example in a 100 unit village the operator will turn over each unit every 7 years based on the industry average occupancy period or just under 16 units per year.  With an entry price averaging say $500,000.00, a deferred fee amount of $125,000.00 (25%), a deferred fee period of 7 years, in this example the operator has the capacity to receive a sum of up to $12.5million dollars every 7 years for the life of the village. ($125,000.00 / 7yrs = $17857.00 per year x 100units x 7years = $12,500,000.00)

retirement village deferred fee

Deferred Fee: The impact of the deferred fee, earnings forgone, rising property prices, rising nursing home entry costs and inflation generally on the $ value of the capital outlay can be the least understood of all the matters to be considered before entering a retirement village.
See Graphic 1 to the left –

The entry price (aka the in-going amount) to a Retirement Village is generally inclusive of the following 2 parts,
1. The Deferred Management Fee. (aka the Capital Contribution)
2. The Refundable Amount on departure. (aka the Refundable Capital Contribution)

With regard to the ‘Deferred Fee’ everything leads to a view that it is paid on departure from the village but nothing is further from the truth. The ‘deferred fee’ is paid the day the cheque is written to enable occupancy, it is included in the total entry $ price which you must pay to obtain a lease document.

From day one of occupancy in the village the refundable portion of the deferred fee (aka the ‘capital contribution’) reduces each year by a set percentage until the ‘deferred fee’ period expires.





deferred fee drawdown$400,000.00 Retirement Village Entry Price inclusive of the $100,000.00 Deferred Fee and the $300,000.00 Refundable Amount on leaving the village.

$100,000.00 Deferred Fee being 25 % of total entry price .

Deferred Fee Period 10 Years.

The refundable portion of the Deferred Fee reduces by 2.5% of the entry price per year until the end of the deferred fee period. (2.5% x 10 years = 25% of Entry Price)

In the example to the left the ‘deferred fee’ $ amount is 25% of the total entry price divided by 10 years (deferred fee period) or 2.5% each year of $400,000.00 = $10,000.00 each year for 10 years.

After the expiration of the deferred fee refundable period only the refundable capital amount ($300,000.00) is left and subject to any capital gain/loss provision and exit and/or refurbishment costs is due for refund on departure.


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WARNING – Some contracts calculate the Capital Contribution (aka the deferred fee) not on the initial entry price but on the eventual selling price.

This ‘selling price’ type contract will have an even larger impact on capital over time, eg: A deferred fee set at say 25% of an entry price of $200,000.00 produces a payment required of $50,000.00. For those village residents with a long period of occupancy and an exit price style contract, 25% of an exit price of say $360,000.00 produces a ‘deferred fee’ payment of $90,000.00, an extra $40,000.00.

This equates to a hidden deferred fee rate of 45.0% on the original $200,000.00 in-going paid.

Where a contract states the deferred fee is calculated on the EXIT price, a 100% capital gain provision in favour of the resident should be enshrined in legislation.

There is currently no legislative protection against consumers being required to sign a lease contract where the so called ‘deferred fee’ is calculated on the exit price but the village operator, not the resident, receives any capital gain in the value of the unit over time.

The table below shows various impacts of the deferred fee treatment with or without any capital gain provision in favour of the resident.

capital gain exit price

The following table shows the extra amount required where deferred management fee is calculated on the exit price rather the the entry price.

deferred fee increase

Some standard deferred fee examples –

Example 1:-
deferred fee 2

If the ‘deferred fee’ is 25% of the total in-going payment of $400,000.00 and the ‘deferred fee’ period is 10 years, then the ‘deferred fee’ totals $100,000.00.

The refundable portion of the ‘deferred fee’ will be reduced at the rate of 2.5% of the total in-going payment per year over the first 10 years of your occupancy.















Example 2:-
deferred fee drawdown
If the ‘deferred fee’ is 30% of the total in-going payment of $400,000.00 and the ‘deferred fee’ period is 6 years then the ‘deferred fee’ totals $120,000.00.

The refundable portion of the ‘deferred fee’ will be reduced at the rate of 5% of the total in-going payment per year over the first 6 years of your occupancy.












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