Living in a retirement village has certain costs, similar to living in your own residential home in the suburbs.
In a normal residential home you can expect to pay most of the following costs:
- Council Rates
- Water Rates
- Insurance
- Strata Fees (apartments and townhouses)
- Maintenance
- Mowing and gardening
- Gutter cleaning
- Pool cleaning
- Security
- Pest inspections and treatments
One of the benefits of retirement village living that we regularly hear from residents is that in a retirement village, most of these fees are wrapped up into one convenient fortnightly or monthly charge, the total of which is often less than they were paying previously.
This charge is known as a village fee. However, as you would expect in Australia, different states have different names for their retirement village fees:
- Queensland – General Services Charges and Maintenance Reserve Fund Fee
- New South Wales – Recurrent Charges Fee
- Victoria – Maintenance Fee
- South Australia – Recurrent Charges/Maintenance Fee and Sinking Fund Fee
- Western Australia – Recurrent Charges Fee
For the purposes of this article, we will call them “Village Fees”.
Retirement village fees and charges
Retirement villages are “resident-funded”, in that residents cover the costs of operating and maintaining the village. Each year, the village operator will sit down and forecast the village operating expenses, based on the prior year’s budget and current year’s actual expenditure. The total of all estimated expenses is divided by the number of units in the village to determine the annual charge, which is then divided by 12 for monthly charges or 26 for fortnightly charges. Some villages will adjust the fee to take into account unit size (smaller units pay less than larger units) or whether there is more than one person living in the residence. The disclosure documents provided to you before buying will explain in detail how the village fees are calculated for your preferred village. Or you can just ask the sales agent.
The village fee covers all costs involved in running the village, including:
- Staffing
- Administration costs
- Insurance
- Council Rates
- Waste removal
- Repairs and maintenance
- Common area water
- Common area electricity
The list above shows the major costs involved. There are other cost items that are minimal such as staff training, printing & stationery, vehicle costs, IT costs, etc.
At the end of the financial year, the village operator is obliged to have the accounts audited and presented to residents. It is worth noting that the funds are received on trust from the residents, they belong to the residents, and the village operator spends those funds on behalf of residents. It is not a payment to the village operator.
Although the budget is designed to be “break even”, it will always end up with either a surplus (money spent is less than funds received) or a deficit (money spent exceeds funds received). Obviously, a surplus is more desired than a deficit! The various state retirement villages laws prescribe the treatment of budget surpluses and deficits. Generally, and this is a very general generally, surpluses and deficits are carried forward to the following year and impact the next year’s fees.
The general principle behind resident-funded village fees is that you get what you pay for. There is no limit to the services that a village operator can provide – it just depends on whether the majority of residents want that service and are willing to pay for it. For example, residents may request an overnight staff member to be on-site to respond to emergencies. This would add around $150,000 to the budget annually, or an additional $1,500 per unit (assume 100 units). A majority of residents would have to vote in favour of this additional service and cost for it to be adopted.
Repairs and maintenance
Another general principle around village fee budgets is that expenses apportioned to the budget are costs relating the operation and maintenance of the community as a whole. It should not include any work done for specific residents. For example, if you want some picture hooks installed in your unit this is a personal service and should not be covered by the community operating budget. Sure, you may have the option of using village staff for this service, but there should be a small charge applied to cover costs which would be brought into the village budget as sundry revenue or expenses recovered. Same for, say, changing light bulbs.
A good rule of thumb to use is that anything within your leased (or licenced) area is your responsibility. However, please note this will depend on your residence contract, as some villages do cover the cost of internal maintenance and repair in the operating budgets (which are typically much higher as a result).
Capital works
The costs attributable to repairs and maintenance of the village are covered by the village operating budget, funded with fees from residents.
The costs associated with replacing capital items (equipment over, say, $500) are covered by the village operator, as are any new capital item purchases. Examples of capital items would be vehicles such as golf buggies, ride-on mowers and village buses, chairs and tables, new guttering, a pool cover, or maintenance equipment.
Administration fees
Most retirement villages have what is commonly called an Administration Charge. This is a charge applied by the village operator to cover the cost of services provided from a head office, usually as part of a group of retirement villages. Typically, it would include operational oversight, accounting services such as payroll, tax and BAS preparation, provision of IT and IT support, human resources, recruitment and specialist maintenance support.
The premise is that if these services were not provided by the head office, then the village would have to employ addition staff or contractors to perform the functions. It is a legitimate charge, however older villages where the fee has increased over time may need to occasionally do a “sanity check” on the quantum of the cost vs the benefits to village residents.
Retirement Village operator profit
The village operator is not permitted by law to include a profit margin in the village fee.
Nothing more to add.
Cost increases
Unlike other seniors’ accommodation options such as apartments and over 50’s communities, retirement village legislation is primarily concerned about consumer protection, that is, protecting the interests of residents living in retirement villages. Accordingly, you will find better protections around village fee cost increases than you would find in a lifestyle or over 50’s community.
Typically, the state retirement villages legislation splits the operating costs between items that are within the control of the village operator (e.g., printing, staffing, etc) and items that are not within the control of the village operator (e.g., rates, insurance, water, elec). Items that are within operator control are limited to CPI increases annually, whereas items outside the control of the operator are not limited at all.
Village operators work hard to keep fees affordable (in relation to the quality/standard of the product) and limit annual increases where possible. Villages with high fees become unaffordable to the very market they are targeting for potential residents, leading to slow sales and non-participation from existing residents in village activities.
Payment of village fees after exit
Many residents (and their families) are surprised to find that they continue to be charged village fees after exiting the unit.
The good thing is that your state retirement village legislation limits the length of time that fees can be charged to exited residents. Of course it is different in each state, but it ranges from nine months to a month and a half. After the prescribed time has expired, village fees are paid by the village operator in the event that the unit has not as yet been on-sold to the next occupant.
The reason fees continue to be charged to exited residents is because the majority of expenses covered by the village fee are ongoing, and don’t cease simply because the resident has moved out. For example, the full amount of rates still has to be paid, similarly for insurance, common area water and electricity, and the village simply can’t reduce staff hours according to the number of residents in the village. It is no different to moving out of your home in the suburbs – you can’t just stop paying insurance and rates, etc, because you moved out and the home is vacant.
There may be a situation where you are struggling to pay the village fees after exit. For example, you may have gone to aged care and are now expected to pay aged care fees and retirement village fees. In this event, you can submit a financial hardship request to the village operator and arrange to have the fees accrue and removed from your exit entitlement once the unit has resold.
The last word
Village operators are regularly accused of delaying unit re-sales so they can continue to charge fees to exited residents. The thinking here is that village operators make money from the fees, which is just not true. Village operators and exited residents are closely aligned in wanting a fast re-sale of the exited unit.