Glossary

Refundable Entrance Fee Contract

Also known as: refundable contract, Type A refundable plan

A CCRC contract type under which some or all of the resident's entrance fee is repaid to the resident or their estate upon move-out or death, typically funded from the entrance fee paid by the next resident to occupy the unit.

Refundable contracts are more attractive to prospective residents (and their heirs) and have become the dominant product in many markets, but they create a financing structure that depends on continued turnover and re-sale of units to fund outgoing refund obligations -- a dynamic sometimes described as requiring the next resident's entrance fee to pay the prior resident's refund, which is manageable in steady-state operation but creates liquidity risk if turnover slows or a community cannot re-lease units quickly. CCRC operators and their lenders track a 'refund reserve' or equivalent liquidity cushion specifically to manage the timing mismatch between refund obligations coming due and new entrance fees being collected.