Reality Bites

George, 85, had lived comfortably in a retirement village in Melbourne’s south-eastern suburbs for nine years – in a unit that cost $595,000 – but when the time came for him to move into aged care he and his three children received two sizeable shocks.

- Rodney Horin & John Rawling

The retirement village operator took two years to sell his unit, which meant his family was unable to pay the $1 million refundable accommodation deposit (RAD, formerly known as the bond) that was required by the aged-care facility. George was able to move in but his family had to pay an annual fee, known as the daily accommodation payment (DAP), which amounted to 5.73% of the outstanding amount of the RAD. (The DAP is paid on a regular basis, up to a month in advance, and is similar to paying rent. This fee is set by the federal government. If a person has no asset base, the DAP equates to about 80% of the pension.)

This dramatically stretched the family’s cash flow. His family’s efforts to speed up the selling of George’s unit in the retirement village by engaging a real estate agent were firmly rejected by the retirement village management, which pointed to a clause in the contract – signed 10 years earlier – that only management could sell the unit.

There were also clauses that prevented the family bringing in their own painters and providing replacement whitegoods.

When the unit finally sold, George’s family received their second shock. Subtracted from the unit’s $1.02 million sale price was a deferred management fee (32.5% of the sale price) of $331,500, a long-term maintenance fund fee (4%) of $40,800, reinstatement costs (new kitchen, painting the unit, etc) of $70,440, a releasing assistance fee (2.5%) of $25,500 and legal costs of $970.

George’s $1.02 million had rapidly become $550,800. In nine years, George’s family had lost more than $400,000, despite the fact the unit had nearly doubled in value.