What is the Deferred Management Fee: Leaving a village

You may be planning on making a retirement village your forever home, but life can be unpredictable. That's why it's helpful to understand the process of leaving a village before you move into one.

You're free to leave a retirement village at any time you want. One important protection to be aware of is the 15-day cooling-off period after signing an Occupation Right Agreement (ORA), during which you can change your mind and cancel. After this period, if you want to leave there are costs to consider.

The Deferred Management Fee (DMF)

When you exit a village, the main cost is usually the Deferred Management Fee. This is taken from the amount you originally paid when entering the village. The DMF helps cover the ongoing costs of village management and refurbishment (things like roading, footpaths, lighting, communal amenities, etc.). What the fee covers will vary from village to village, and it may also be referred to as a 'Facility Fee', 'Village Contribution' or 'Exit Fee'.

The amount deducted from the capital returned to you is calculated according to the conditions in your contract, usually on an accruing annual basis to a maximum percentage of the purchase price. Industry-wide, the typical DMF works out to around 27% of the purchase price. Some villages will guarantee that the DMF will not exceed a specific percentage of the purchase price.

An example of how this works in reality is shown here.

Other costs

You will also have to pay any administration, sales or legal fees that were agreed to be deducted in your contract, plus any other costs still owed to the village (such as village levy or accrued charges in the restaurant for example).

Important questions to ask before you sign

Some questions worth asking before you enter into any signed agreement include:

• Do you understand what the DMF is, and how it affects what you or your estate will receive once your unit is sold.
• Are you expecting to receive capital gains once you sell? If so, you might be disappointed.
• How will the sale of the unit be handled? Can you/your estate have a say in the valuation and marketing process?
• Who pays for the marketing, administration and/or refurbishment costs?
• Will you/your estate be reimbursed for any improvements or alterations you've made to the unit? Or will you be charged to remove them?
• Will you/your estate be responsible for paying maintenance costs/regular fees while the unit is on the market? If so, for how long?
• When will you/your estate receive payment from the sale? What if there are delays?

It’s important to consider your financial obligations, especially if you require funds to move somewhere else.