A growing number of Australians choose to sell their homes and move into retirement villages once they stop working. It’s a move that can swallow hard-earned nest eggs if retirees don’t read the contracts carefully.

A recent investigation into the sector by the ABC and Fairfax Media has prompted activist groups to agitate for change from government. But bureaucratic wheels turn slowly, so anyone thinking of making the move should be careful.

Retirement villages work in one of two ways. You can buy a strata titled unit in one and pay ongoing fees for services and facilities.

But at least 80 per cent of people use leasehold arrangements where you buy the right to occupy the property and it is here that you can run into trouble. You may be surprised by the fees you are hit with.

There’s an entrance fee, which is effectively the cost of buying in. Until recently this tended to be around 90 per cent of the cost of buying a similar unit in the same area. This is gradually changing.

“Property prices are rising and so is the cost of going into retirement villages. I’d say its moving closer to market value,” said Shanny Gordon, a retirement worker with the Housing for the Aged Action Group.

Once you’re in, there are ongoing fees which cover maintenance and services. These can average $350 per month for independent living units, but can be up to $1000 per month or more for ritzy accommodation.

All that is reasonably straightforward, but the real issues come when you want to sell. This generally happens when people move into aged care or die.

A major bugbear here is deferred management fees. “These are known as exit costs and are usually between 20 and 40 per cent of the sale price,” said Katherine Temple, senior policy officer at the Consumer Action Law Centre.

The value is usually worked out on an annual basis for a set time. For example, a 5 per cent fee for six years would be 30 per cent on sale if you stayed that long.

Then there is often another sting in the contract tail; you have to share any capital gain with the village promoters. “It’s often tens of thousands and it’s calculated after exit fees,” Ms Temple said.

So that means if you buy a unit for $100,000, sell it for $200,000 and the exit fee is 40 per cent of the purchase price, you would be left with $160,000 after exit fees. Then if it’s a 50 per cent capital gains share you are left with $130,000.

There are some other tricky things with selling. You may have to pay reinstatement and refurbishment costs which can be “a set fee of $50,000”, Ms Temple said. And the centre owners often act as real estate agents, determining who can buy the property and even at what price if they are the only buyers in the market.

“Lots of contracts require you to pay management fees on the property for six months if it is not sold after the residents move out. In older contracts it can be longer,” Ms Gordon said. In some cases, payments have gone on for as long as eight years.

Currently, retirement villages are regulated by the states. Ian Henschke, National Seniors Australia chief advocate, said it was time the Commonwealth stepped up to the plate “and showed leadership to create one national approach”.

“I think it’s a very large problem and I think it’s a growing problem because we have 5.5 million baby boomers moving into retirement.”