Exit Fees

The exit fee – which is used by the majority of retirement villages – is a payment model that is unique to the retirement village sector.

The exit fee helps to compensate the village owner for the cost of building the village, and allows the resident to part-pay for this at the end of their residency rather than the start. The exit fee is designed to ensure the entrance price (ingoing fee) into the village is more affordable. Retirement village units are often priced lower than comparable homes in the same area.

The exit fee is designed to give purchasers flexibility in how they pay for the investment made by the owner of the village. Some prospective residents may not be able to afford to pay full market price for a village unit when they move in, and are happy to pay for some of the value of their residency by way of a larger amount retained by the operator when they leave.

This payment is often a percentage of the ingoing fee, or the sale price, and is agreed to in the contract upfront. The fee is paid to the operator when a resident leaves the village, and is usually deducted from the sale price.

A resident who leaves a village may also receive an amount from the operator when the unit is sold to a new resident. Known as an exit entitlement, the terms used to calculate this amount is documented in the resident’s contract.

The exit fee is commonly calculated as a percentage paid per year of residency, and is capped at a maximum, for example, 3% per year capped at 30% after 10 years. It may be calculated on the ingoing cost that the resident paid, or the amount the unit is sold for when the resident leaves. The calculation method varies between providers, and may even vary within a village, as different residents opt for different payment options that suit them.

The amount agreed to be paid by a resident upfront (the ingoing fee) or upon leaving (the exit fee) can also alter the share of capital gain the resident is entitled to. It is up to the prospective resident and the operator to agree upfront to an exit fee that both parties consider fair, and a reflection of the value of village life.

Consider these two examples as the way an exit fee may be calculated:

John & Betty Albert & Cathy
Entry Price $400,000 $500,000
Length of Stay 10 years 10 years
Percentage per year 6% per year 4% per year
Capped after 5 years 8 years
Annual Property Increase 5% 5%
Sale Price (rounded) $650,000 $823,000
Exit Fee Payable on Sale Price $195,000 $263,360
Return to Resident $455,000 $559,640

The parties can also agree whether the resident receives all, some, or none of the capital gains on their unit when they leave the village. Whether a resident receives a share of the capital gain often affects the exit payment.

Again, consider these two examples:

Ted & Carol Bob & Alice
Entry Price $400,000 $500,000
Length of Stay 10 years 10 years
Percentage per year 6% per year 4% per year
Capped after 5 years 8 years
Annual Property Increase 5% 5%
Sale Price (rounded) $650,000 $823,000
DMF Payable on Entry Price $120,000 $160,000
Capital Gain Share (50/50) $125,000 $161,500
Return to Resident $405,000 $501,500

When looking at a retirement village, the Sales Consultant will be happy to provide you with an explanation of their exit fee.