If you have been reading the fine print on retirement village contracts, you have almost certainly come across the term "deferred management fee," or its siblings, "exit fee," "departure fee," or "DMF." It is one of the most misunderstood aspects of retirement living, and understandably so.
This article explains exactly what a deferred management fee is, how it is calculated, what questions to ask before you sign a contract with a retirement village, and how to make sure you are not caught off-guard when the time comes to leave.
What Is a Deferred Management Fee?
A deferred management fee is a charge that becomes payable when you leave a retirement village. Rather than paying the full market rate upfront for your residence, you pay a reduced entry fee, and the village retains a portion of the value when you depart. The "deferred" part means you do not pay it until you leave.
Think of it as a form of deferred payment for the facilities, services, and care infrastructure the village provides during your stay.
DMFs are a standard feature of the retirement village industry in Australia and are regulated by state legislation. In Victoria, the Retirement Villages Act 1986 (and its subsequent amendments) governs how these fees must be disclosed, calculated, and communicated to prospective residents.
How Is the Deferred Management Fee Calculated?
The specific formula varies by village and contract, but the most common structure works like this: a set percentage per year, capped at a maximum.
The DMF accrues at a set percentage of your ingoing contribution (entry fee) for each year you live in the village, up to a defined cap. A typical example might be 3.5% per year, capped at 35% after 10 years.
So if you paid $700,000 to enter and stayed for 6 years, your DMF would be 3.5% x 6 = 21% of $700,000, which equals $147,000. If you stayed for 15 years, the cap of 35% would apply, so the DMF would be $245,000 regardless of how long you remained beyond 10 years.
At Ageing in Place Retirement Villages in Victoria, the current rate is 3%, which means the DMF would be less than in the example above.
Important Variations to Check in Your Contract
- Is the DMF calculated on your entry price or the resale price? If it is based on the resale price and property values have risen, your DMF will be higher than you anticipated.
- Does the DMF apply to capital gains? Some contracts give the resident a share of any uplift in the unit's value; others keep all gains for the operator.
- Is there a minimum period before the DMF applies?
- Are there other departure costs on top of the DMF? Such as reinstatement costs (repainting, recarpeting).
What Will the Information Statement Tell You?
Under Victorian law, retirement village operators must provide prospective residents with a formal Information Statement before any contract is signed. This document must disclose all fees, including the full DMF structure.
At Ageing in Place, we provide Information Statements for all three of our villages: Mount Martha, Carrum Downs, and Berwick. We encourage every prospective resident and their family to read them carefully and seek independent legal advice before proceeding. You can download the Information Statements directly from each village's page on our website, or via the buttons below.
DMF vs. No-DMF Villages: What Is the Real Difference?
Some newer retirement village operators market themselves as "no exit fee" or "no DMF" villages. If this sounds too good to be true, it is worth understanding what that usually means in practice.
Villages without DMFs generally charge higher entry fees upfront to compensate. The underlying economics are similar: it is largely a question of when you pay and how the risk is distributed. For people who expect to stay in a village for a shorter period, a no-DMF structure may be more cost-effective. For those who plan to stay long-term, a DMF model may work out similarly.
The key is to compare total costs across your likely timeframe, not just the headline entry price.
Five Questions to Ask Your Prospective Village About the DMF
Before signing a retirement village contract, ask and get written answers to the following:
- What percentage per year is the DMF, and when does it start accruing?
- What is the maximum DMF cap, and after how many years does it apply?
- Is the DMF calculated on my entry price or the resale price?
- Do I receive any share of capital gains when the unit is sold?
- Are there any reinstatement or preparation-for-sale costs on top of the DMF?
A reputable village will answer all of these clearly and willingly. If an operator is reluctant to discuss departure fees before you move in, that is worth noting.
Get Independent Legal Advice Before Signing a Contract
We strongly recommend that every prospective retirement village resident, regardless of which village they choose, have their contract reviewed by a solicitor before signing. The contract is a significant legal and financial document, and independent advice ensures you fully understand what you are agreeing to.
Consumer Affairs Victoria and the Seniors Rights Victoria service can also provide guidance on retirement village contracts at no cost.
Ageing In Place Retirement Villages: Our Commitment to Transparency
At Ageing in Place, we believe that clear, upfront information makes for better decisions and happier residents. We do not hide our fees or make them difficult to understand. Our Information Statements are available on each village page, and our team is always happy to walk you through the numbers in plain English.
If you have questions about our fees, the best place to start is a conversation. Our team is happy to walk you through costs, answer every question, and give you the time you need to make the right decision.
Book a free personal tour or call us on 03 9822 9505.
This article provides general information only and does not constitute legal or financial advice. Always seek independent advice before signing a retirement village contract.
