Queensland’s weather and lifestyle make it a popular, preferred destination for retirees in Australia, meaning the place of retirement villages as a living option for seniors is an important consideration once working life has ended.

There are different arrangements by which residents secure a ‘right to reside’ in Queensland retirement villages, including loan and license agreements, leasehold agreements and freehold strata title, each with implications for a retiree’s financial obligations. In this article, however, we’ll focus on retirement village leases and, specifically, how fees payable at the end of a lease have implications for both residents and their beneficiaries.

More on leasehold agreements in retirement villages

In Queensland, retirement village leasehold agreements typically grant residents exclusive use of a unit for a defined period, which can be up to 99 years. Residents pay an ingoing contribution under a residence contract and also face exit fees. This usage is a right to reside in the unit under the residence contract, rather than a property interest. The lease with the retirement village operator is registered with the Queensland Land Registry with the prospective resident paying costs incurred by the lessor and any applicable government charges.

The lease itself may be sold or assigned but not transferred to the resident’s children or other beneficiaries in a will. Only the residual value of the lease (after the deduction of exit fees, legal fees and reinstatement costs are met) can form part of a deceased person’s estate. This makes the issue of exit fees and other end-of-lease costs a concern for beneficiaries in determining what their inheritance might be.

Sale proceeds and exit fees

When the retirement village lease comes to an end, the leaseholder and the village scheme’s operator agree on a resale value for the right to reside. The new resident then pays that value for the right to reside, ending the former leaseholder’s right to reside along with any other rights under the contract.

Exit fees, sometimes also known as departure fees or deferred management fees, are perhaps the most significant financial consideration when leaving a retirement village. These fees are usually either a percentage of the initial ingoing contribution or its re-sale value, and may accrue annually. Exit fees can represent a significant amount of money as they are generally calculated based on the length of occupancy.

Departing residents may also be asked to pay:

• any outstanding general service charges or maintenance reserve fund contributions;
• any outstanding personal services charges;
• a share of expenses from reselling the unit;
• costs associated with reinstating and/or renovating the accommodation unit;
• any other costs covered in the residence contract.

In some cases, capital gains tax may be applicable upon the sale of a unit in a retirement village, depending on the individual’s circumstances. Some retirement village schemes may also charge a fee based on any capital gains made on the sale of the unit.

It’s important to note that in Queensland, the resident is responsible for on-going charges for the first 90 days of leaving a retirement village if the right to reside is not sold. In the six months after that period, the costs are split between the resident and the resort.

A retirement village operator must give a departing resident an estimated exit entitlement statement with total fees and charges within 14 days of an initial request. The exit entitlement is the amount remaining after the deductions from the ingoing contribution. The exit fee is calculated as at the day you leave the village.

The costs outlined above – plus ongoing costs and service charges incurred while living in the village – all have the potential to diminish the estate available to child beneficiaries of the resident.

Can the impact on inheritance be minimised?

Residents and their children should be fully cognisant of the terms of the residence contract before signing, including all potential fees and charges. The advice of a legal professional with experience in retirement village contracts is essential at this stage.

Some residents may be able to negotiate exit fees as part of their contract. Discussing this with the village management before signing can be beneficial. Residents should consider their financial situation and plan accordingly. This might include setting aside funds to cover exit fees or exploring financial products that can mitigate their impact.

Residents should also periodically review their lease agreement to ensure it remains favourable. Legal advice may be necessary to understand any changes in legislation or village management policies.

Contact our expert team

Our experienced professionals at Big Law regularly advise clients on retirement village residence contracts, including discussions about how exit fees and other charges at the end of a leasehold arrangement may impact the resident’s estate.  By understanding the different fees involved, negotiating where possible, and seeking professional advice, retirees can better manage their finances to ensure a comfortable retirement while preserving their legacy for their loved ones.