Deposit
Once you have selected your retirement home you will need to hold the property by leaving a deposit with the seller. The deposit is typically a notional amount of around $1,000 - $5,000, and should be refundable in the event that either party withdraws, or come off the sale price of the property if you proceed with the purchase.
Placing a deposit on a property may not necessarily reserve that property exclusively for you however. Some operators take several deposits on one property and sell the home to the first buyer who can come up with the cash.
Ingoing Contribution
This fee is the amount payable under the contract to secure the right to reside in the retirement village. Otherwise known as the purchase price or entry price.
Contract Preparation Costs
These are the legal and other expenses incurred by the village owner in the drafting and execution of the contract of sale/purchase. It is fair to split these costs equally between your self and the owner, however you should ask to see a copy of the invoices to confirm the expenses.
Personal Services (or Services) Charge
While you live in the village, you may wish to purchase additional services from the operator, such as cleaning, laundry, meals, etc. The cost for this service is negotiated between the village operator or services supplier and the resident. There may be a contracted time period that you must use the services for or there may be a cancellation notice period.
Refurbishment Costs
The Refurbishment Fee is no so much a fee as an obligation to fund the refurbishment of your unit back to a "marketable" condition. A marketable condition means the same general condition as when you first moved in and comparable to the other units in the complex. You will generally find that the operator will project manage the refurbishment for you, but you should take care to ask for a quote before they commence works. Unless it is stipulated as such in your contract, you are under no obligation to use the operator to coordinate your works and you could organise the works yourself.
Retirees are usually gentle with their residence so it is unlikely that the cost of your refurbishment will be significant. Typically a fresh coat of paint and new carpet, plus repairing any broken fittings is all that is required. An average cost for this would be between $5,000 - $10,000.
Unless your contract stipulates otherwise, the level of refurbishment is a subject of negotiation between you and the operator. However, remember that you are now trying to sell your unit and you need to make it as saleable as possible so it sells quickly for the best possible price.
Contracts around the country vary as to whether the refurbishment costs are funded by the village owner or the resident. Some states actually stipulate who should fund the costs in their legislation.
Under some contracts, a resident is not released from their contractual obligations until a refurbishment and re-sale of the unit has occurred. This is done to protect the owner from vacancies and effectively ensures the complex is able to operate at 100% occupancy. Other complexes buy your unit back themselves or commit to do so if you haven't sold after a period of time.
Sales Commission
When you sell your unit, whether it is under a deferred fee model or a strata freehold, you will need to employ a licensed real estate agent. Larger villages typically have their own licensed sales agents located in a sales office on site, however unless your contract states otherwise, you should be free to appoint any licensed agent to sell your unit. Even if you have had major disagreements with the village owner, we recommend that you use the onsite sales agents, as they are best placed to sell your unit. Your average real estate sales agent outside of the complex will probably struggle to understand your purchase contract, let alone explain it to prospective purchasers.
In Queensland, sales commissions are capped at 5% for the first $18,000, then 2.5% on the balance of the sale price, although you can negotiate a lower fee than this. The other states and territories do not regulate sales commissions and you will need to negotiate this with your selling agent.
General Services or Village Fee
The General Services Fee or Village Fee is a regular fee charged to each resident for the funding of costs such as grounds and maintenance, insurance, security, etc. Obviously the more services and facilities offered by a village the higher the charge is likely to be. Conversely, large villages with many units are able to spread the costs over more parties and the fee is likely to be lower. For new villages the owner pays the fees attributed to a vacant unit until such time as the unit is sold. The owner will also fund the costs attributed to common areas such as reception, sales office, etc.
The village operator is required to prepare and adopt an annual general services charges budget for each financial year to ensure appropriate planning for costs of general services. There should be no profit margin built into this fee for operators and residents' committees are entitled to ask for a reconciliation of these costs at year-end.
The fee is usually charged on a weekly or monthly basis. You can expect it to increase annually by CPI each year, or as otherwise outlined in the budget, as there may be new or additional costs to be covered in the next budget year.
A resident is obliged to continue paying the fee until such time as the unit is re-sold. This means that if you move out for whatever reason and it takes six months to re-sell your unit, you are still obliged to pay the charge over the six months that your unit has been vacant. Some state retirement legislation actually caps the liability time after vacating.
Deferred Management (or Exit) Fee
The Deferred Management Fee (DMF) found in "Loan/Lease" or "Loan/Licence" contracts is an annual fee charged for each year of occupancy, capped at a set number of years, and calculated as a percentage of either the original sale or subsequent re-sale value of the licence. The fee is accrued annually at each anniversary of the resident's commencement at the village, and paid out to the village owner from the proceeds of the re-sale of the unit.
The fee is generally calculated on the length of tenure, calculated as a percentage of the entry or exit value of the contract. The fee varies between villages, within villages and also between Australia and New Zealand.
Share of Capital Gain on sale
Under the Deferred Management Fee contracts, residents may be obliged to entirely forfeit or share any capital gains with the owner on the re-sale of their unit. Generally, if the fee is calculated on the exit price, there should be limited or no capital gains payable. If it is calculated on the entry price, the resident gets the benefit of knowing what the fee will be up front, but will likely have to share any capital gains made on re-sale with the owner. Most contracts contain a 50/50 split of capital gains between the resident and the village owner, although some owners have been known to take 100% of the gains.
Capital gains are realised when a resident vacates their unit and the unit is sold to a new resident. Upon re-sale, the owner returns the sale proceeds to the previous resident after subtracting the fee and their contracted share of the capital gain.
Sharing any capital gain with the owner is generally only applicable under contracts where the DMF is calculated as a percentage of the entry value of the Occupancy Right and not as a percentage of the re-sale price (or exit value) of the Occupancy Right to the in-coming resident. However there are no laws governing this and operators are free to choose whichever structure they prefer.
Exit Entitlement
The Exit Entitlement is not a fee, but is worth mentioning here because it is the money returned to the resident following the re-sale of their unit and the removal of all accrued exit fees, commissions and charges.
Body Corporate Fee
The Body Corporate or Owners Corporation Fee is similar to the General Services Fee in what it covers, but is associated with strata freehold properties only. The complex corporation is usually obliged by law to set budgets annually for administration and sinking funds (for repairs) and there should be a reference for the dollar amount set, such as engineering reports.
Stamp Duty
Stamp Duty will usually be applicable to your purchase and you should confirm with the salesperson in the first instance as to what the calculation is. Double-check this with your solicitor if you proceed further with the purchase.
GST
GST is payable on the freehold purchase of newly built dwellings only. There is no GST payable on DMF contracts.