Fourteen pensioners from Willow Lodge Over 50s Resort in Melbourne will challenge the "deferred management fees", around 20 per cent of a property's sale value, they will be charged by their centre manager to leave the facility.

Retirement village and park operators commonly use lump-sum deferred fees paid when a resident leaves to recoup the costs of developing the village and profit from having residents.

The deferred fee reduces the upfront cost for residents.

Willow Lodge contracts require residents to pay 4 per cent of their property's sale price for each year of residence, up to a maximum of five years.

The pensioners will take their case against village operator Walter Elliott Holdings to the Victorian Civil and Administrative Tribunal aided by the Consumer Action Law Centre.

They allege the fees are unfair in contract terms.

The applicants were retired, elderly, relied on an aged pension for income, not tertiary qualified and lacked commercial or business acumen, their legal claim said.

The contracts failed to offer opportunity for negotiation and did not take into account their circumstances, they allege.

Consumer Law chief executive Gerard Brody said many residents signed long and complex contracts without legal advice and got a "huge shock" when they had to pay large fees to leave.

They often moved into villages at times of great personal upheaval after a loved one had died or having just left the family home and didn't understand what they were signing, he said.

Mary Wood, executive director of the Retirement Living Council, said the deferred management fee was the most common method of payment for retirees living in a village.

Ms Wood would not discuss specifics of the VCAT case but said about 90 per cent of village residents live under the deferred fee structure. At least 78 per cent receive an age pension.

"The deferred fee ... is designed to reduce upfront costs. That's one of the reasons it's popular with a lot of residents, particularly those on low incomes or pensions," she said.

"The exit fee helps to compensate the village owner for the cost of the village but allows the resident to part-pay that cost at the end of their residency rather than the start which obviously means it brings down the entrance price," Ms Wood said.

Walter Elliott Holdings chief executive Manuel Lang said he was "shocked and surprised" by the action.

"We will be defending it strenuously. We deny there has been any level of unconscionable conduct on behalf of our staff or the company," he said.

The 14 pensioners will seek to have the contracts declared void.

Mr Brody called on the government to conduct a broad review of existing retirement legislation.