Sep 01, 2002

Life Lease Housing and Seniors #351


By Gerry Neely

Life lease is a term for an alternative residence and ownership arrangement for seniors. The term has been growing in BC over the past ten years because of its appeal to seniors with shared interests and values. The typical arrangement involves a non-profit service club or church sponsoring the construction of an apartment-style residential building to be leased to persons 55 years or older.

From the sponsor, who acts as landlord, tenants meeting the age requirement purchase the right to live in a unit until they terminate the lease or die. At that time, they or their estates are entitled to refunds of some or all of the original purchase price, or the opportunity to share in any increase in price depending upon the terms of their leases. The rationale for not sharing in an increase in price is that the tenants paid below-market prices for their units due to the sponsor's donation of land or other resources.

The following details of one form of life lease, which is taken from a Disclosure Statement filed with the Superintendent of Real Estate, will help explain the pros and cons of life lease housing. In this case, the sponsoring service club had formed a housing society to develop the property and it incorporated a limited company to own the land.

Fees and Financing
The units range in price from $139,000 to $190,000, approximately 20 per cent less than the values attributed to each strata lot in a schedule attached to the Disclosure Statement.

Each tenant pays an Entrance Fee, which consists of the total purchase price of one unit plus a security refund payment of $2,500 and, if required by the purchaser, a $5,000 payment for a parking space. All amounts are refundable except the security refund, which remains as part of a pool of similar amounts from which the Entrance Fee is to be refunded upon a lease termination.

The landlord agrees, if sufficient funds are available, to refund all of the Entrance Fee, except the security refund, within 90 days of termination of the lease. If there are insufficient funds available to pay a refund to one or more tenants, each is paid in accordance with the order of their lease terminations and upon the sale of their unit.

In addition to the Entrance Fee, the tenant pays a proportionate part of the operating expenses comprised of strata fees, taxes and landlord's costs (that is, financing costs and reserves set aside under the lease).

Development and long-term financing are secured by a first mortgage against the title of all strata lots. As security for the refund of the Entrance Fee, the landlord agrees to grant each tenant a mortgage in the principal amount likely to be refunded. The reason this may seem indefinite is that any monies owed by the tenant are deducted from the amount to be refunded. The mortgage to a tenant who has paid all of the Entrance Fee is granted priority over the first mortgage. The mortgage to a tenant who has paid less than full price remains a second mortgage. The tenant can obtain financing from the landlord for the unpaid portion of the purchase price, and can repay this amount at any time to give the tenant's mortgage priority over the first mortgage.

Rights and Responsibilities
An Offer to Lease, a Lease and a Security Agreement define the rights of the tenant and landlord.

The tenant is prohibited from registering the lease in the Land Title Office and from assigning the lease. The landlord's consent is required for a change of possession or a subletting by the tenant. The landlord can withhold consent arbitrarily if the tenant expects to receive money or other consideration in excess of the tenant's payment of operating expenses. No one under the age of 55 years, other than the spouse or common law spouse of the tenant, can permanently occupy the unit without the landlord's consent.

Although the landlord is the owner in fee simple of all the strata lots, section 148 of the Strata Property Act assigns to the tenants the landlord's rights and responsibilities with several minor exceptions. The tenants therefore have the right to vote and to sit on the strata council.

With respect to repairs and maintenance, the tenant is only responsible for ordinary cleanliness and reasonable care of the unit. The landlord's obligations are to maintain and repair the unit so it is fit for habitation and to ensure it complies with health and safety standards. There does not appear to be an express obligation on the part of the landlord to repair and maintain common areas and assets, presumably because that is the responsibility of the strata corporation. Since the life lease definition of common expenses includes the repair and replacement of the building, the cost of repairing a leaky condo would fall upon the tenants in the same manner as if they were fee simple owners of their units.

The lease can be terminated voluntarily by the tenant with written notice and delivery of vacant possession, or automatically upon the death of the tenant. Where there are two tenants, the lease is terminated upon the last to die. The landlord can terminate the lease with 30 days' notice for a default in payment, and without notice if the landlord deems the tenant's actions to be a nuisance, detrimental to the project or a danger to other tenants.

There have been some problems with life leasing, which is largely unprotected by consumer legislation. The Residential Tenancy Act does not apply to a life lease. Adequate disclosure is only required if the project is strata titled and therefore falls under the Real Estate Act. The problems and other issues will be discussed in the next column.

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