Agony Aunt: Understanding Retirement Village Fees

Dear SAY,

My family house is too big for me and has become completely impractical as I've reached the later stage of my life. I would like to move into a retirement community but am worried about all the charges and fees involved. In particular, I keep seeing information about fees which seem to allow the operator to take money from my estate. What are these, and should I be worried?

Our Advice,

The fees you are referring to are given various names. You may have seen them called 'deferred management fee'; 'event fee'; 'transfer fee' or 're-sale fee'. These all generally mean the same thing. It is an agreement between you and the operator of the village that a fee is payable when you or your family sell (or sometimes sub-let) the property. Generally, this fee is calculated a percentage of the sales value of the property. The lease will state how this value is calculated, but it is usually either the price you paid for the property when you moved in or the price you are selling the property for when you move out.

So, what are the fees for? Well, generally these fees are charged for two main reasons. Firstly, they may generate an operating income for the developer, which ensures that they can continue to provide a high level of service to their residents into the future, and can protect the long-term maintenance of the village or development. The fees essentially mean that both the resident and the operator/developer have a stake in the long-term success of the scheme, which can help to maintain service and maintenance standards.

Secondly, many retirement communities charge fixed service charges or discounted service charges. This is unique to this sector and recognises the fact that most retirees have fixed incomes. To make this possible, the deferred management fee is charged to protect the operator/developer's interests and enable them to take on the risk of charging a fixed, or discounted service charge. This is the reason for the name - the operator is effectively deferring some of the cost of operating the village to the end of your occupancy.

There is a huge variety of cost structures across the sector, so it is important to choose one that is right for you. Everyone's personal and financial circumstances are different, so it's important to understand what cost structure the village is using and make sure it works for you. For lots of people, deferred management fees allow them to live in a retirement community they otherwise couldn't afford. They can also provide certainty of outgoings during your time living in the community, which can be comforting. For others though, it may be important to generate as much income as possible from the end-sale of your property, so these fees may not suit you.

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