Deferred Fee Myth

Retirement village operators will defend the deferred 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 fee) from every new resident over the entire life of the village.

The table below shows in a 100 unit village the operator will turn over each unit every 7 years based on the industry average occupancy period.  With an entry price averaging say $500,000.00, a deferred fee rate of 30% and a deferred fee period of 3 years, the operator has the capacity to generate a deferred management fee sum of up to $15.0 million dollars in the first 7 years of the life of the village.

As the value of the units sold increases so does the amount received by way of deferred fees. In the example below with capital growth of just 20% over the 7 year cycle in the years 1 to 7 total deferred fees received were $15.0 million dollars. In the years 8 to 14 $18.0M, in years 15 to 21 $21.6M and in years 22 to 28 $25.92M giving a total for the 4 x 7 year cycles a whopping eighty million five hundred and twenty thousand dollars ($80.520,000.00). It is difficult to argue that the operator was not compensated for the cost of the village communal hall and recreational facilities by year 7 let alone year 28.