What is a deferred management or departure fee, and what does it mean for my retirement?

A deferred management fee—also called a departure fee—covers any expenses incurred by a retirement community during your residency, and is charged when you move out. When you sell your unit, the community deducts this fee from the sale price.

The services it covers vary by community but can include:

  • Refurbishing your unit after you leave
  • Marketing your former unit for sale
  • Legal fees to re-licence your former unit
  • Communal area maintenance

Your community usually calculates this fee by multiplying a percentage of your purchase price by how many years you lived in the unit. In most cases, there is a maximum amount.

Before you choose a retirement village, you need to get all the information about the village’s deferred management fee policy in writing—what it covers and what the percentage will be. If you’re unsure about any of the stipulations, consult with a trusted conveyancing professional to make sure you know what you’re getting into before you buy.

This fee can take a good chunk out of your sale price, eating into your retirement income and making it difficult to find another home of the same quality. If you stay in your unit until you pass on, the charge will be passed onto your heirs, and will reduce the proceeds they receive from the sale.

Bottom line, you’ll need to factor this fee into your monthly budget—perhaps even putting a sum aside in the bank every month to cover it. This way, you can earn interest on the money you save towards the fee.

As you consider purchasing a unit in a retirement village that requires departure fees, factor this fee into the decision making process. In addition, your departure fee might not cover all the fees you have to pay during your stay in your unit. Be sure you know all the fees you’ll need to pay before you agree to buy.

Often, a retirement village will try to sell you on choosing a departure fee arrangement as a strategy to keep your purchase price low. However, when you consider such a purchase, be sure you factor in the departure fee, since it will be deducted from your proceeds when you or your family sell the unit.

The other factor you need to consider, should you buy a unit with a deferred management fee, is that selling it might prove difficult, since departure fees often deter potential buyers from purchasing such a unit. Even if you move into another home and cannot sell your unit, you still might have to pay the fees until you find a buyer.

Even though your unit appreciates in value, you won’t see much gain compared to a similarly priced home that does not require a departure fee. For example, if you purchased a unit for $225,000 with a departure fee of 25%, maintenance fees of 5%, and an administration fee of 2.5% and kept it for 10 years, you would have to pay over $113,000 in fees at the time of sale. If the home’s value appreciated to $350,000, the owners would only receive around $236,000 for their home, once the village deducted the fees.

If, on the other hand, the buyer had elected to choose a unit without a deferred management fee, they would have received 100% of the final sale value. Even if the unit carried a higher purchase price, and appreciated to the same value, the buyer would likely have been better off in the second example.

If you’re considering downsizing your home to move into a unit in a retirement village, don’t make a move until you’ve done some thorough research. For more information about downsizing your home, download our e-book, Downsizing Your Home: Selling and Downsizing Tips for Seniors.


Looking for a conveyancer or solicitor?
Speak to the law firm with the experience and dedication you need.
Scroll to Top