Retirement Villages Fair & Reasonable?

There are various financial outcomes for retirees based on differing contractural provisions.

Retirement Villages Fair & Reasonable? - Retirement village developers argue that there are many social benefits for retirees from life in a retirement village, but is the capital cost to retirees of these social benefits fair and reasonable. Should vulnerable retirees be allowed to plunge head first into these contracts. There is no way with a Deferred Management Fee model governments and legislators can protect retirees from what they do not know or cannot identify at the time of commitment.

Legislative policy objectives for the retirement village industry have often been to educate not legislate.

The retirement village industry mantra that stronger consumer protection will come at the cost of industry growth has seduced legislators and failed Australian retirees.                                         

There are many complexities in the retirement village industry with a focus on contracts, legislation, consumer protections etc. Attention must be given to areas that current proposals for reform will not fix such as the grossly unfair accelerated transfer of capital wealth from retirees to village operators / developers under the guise of the Deferred Management Fee model. A model designed for charity organisations of decades past, not the modern private enterprise world of today.

Respected finance reporter Alan Kohler wrote in an article titled Retirement Village rorts: the booming scandal in 2014 -

"Taking them one at a time, deferred fees are where you buy a unit in a retirement village at full price, but when the time comes to sell you have to pay the village owner a large percentage of what you get."

"There are a variety of deferred fee schemes contained in retirement village contracts and they all rely on the fact that when an elderly couple signs it, they tend not to pay much attention to what might happen to the assets when they die."

Table 6 below shows 4 different outcomes for retirees based on differing contractural provisions. Legislators must examine are any of the four fair and reasonable when for the retiree there is no property ownership, only a conditional right to occupy.

Do these outcomes reflect a fair and reasonable cost to the retiree for the provision of residential accommodation. Many occupants in retirement villages across Australia would state that they do not.

Table 6

In this year of 2017 serious consideration must be given to the very existence of a deferred Management Fee.

 If there is no discount to the entry cost there is no justification for a Deferred Management Fee
 If there is a Deferred Management Fee then it should reflect only the applicable discount

For meaningful retirement village reform in the best interest of Australian retirees serious consideration should be given to the following:-

1. The use of a Deferred Management Fee be restricted to not-for-profit organisations and only in the circumstances where it reflects a measurable commensurate discount to the village in-going fee when compared to the value of a similar property within the community generally.
   If there is no discount to the in-going cost of a retirement village, there is no justification for a Deferred Management Fee.


2. Where a Deferred Management Fee is calculated on the outgoing unit value, the contract must state that the resident be granted 100% of any capital gain in the value of the unit occupied.


3. The Retirement Village model for private enterprises be amended to just two principles. A contract to purchase or a contract to rent. Both principles are well understood by retirees based on their own lived experience.

Retirement Villages Fair & Reasonable?



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