Life Lease Housing and Seniors (continued) #352
CATEGORY: Legally Speaking
TAGS: Life Leases Life Leases Act Mortgages Senior Citizens Strata Property Act
By Gerry Neely
There are several models for life lease housing other than the one referred to in Legally Speaking 351. That model requires the landlord to refund the purchase price to a life tenant whose lease is terminated.
Other models include the following:
- The tenant receives the refund of the purchase price and all or part of a capital gain.
- The refund is indexed to increases in the cost of living.
- The redemption value is based on future values, which avoids a guarantee but allows the tenant to retain the proceeds of sale, less an amount to cover the landlord's costs.
- The development is not strata titled and both monthly and life tenures are available to residents.
- Under occupancy agreements, life tenured residents are entitled to receive 85 per cent of the appraised fair market value of their units, valued at the end of their residencies.
- A more complicated scheme gives the tenant a life-long occupancy at a much lower purchase price by reducing the redemption value to zero over a period of time determined as if it were an annuity.
Principal Advantages of Life Leases
- participation in a community with shared values where recreational, care and support services are likely to be available;
- the tenant's right to receive a refund of the purchase price, although this right ultimately depends upon there being a market for the unit (In the column 351 model, the tenant's recourse is against the security refund pool, then the sale proceeds of the tenant's unit. If there is still a shortfall the tenant can sue the landlord, but that is likely to be fruitless.);
- the current low interest and dividend rate period means that the payment of capital toward the purchase price is a better use of capital than if it was invested to provide after-tax income to pay for equivalent rental accommodation;
- housing for seniors may be made more affordable by the free contribution of land, labour and materials to a development by non-profit societies and municipalities; and
- where the project has been strata titled, the Strata Property Act provides the mechanism through which management of the strata corporation can be undertaken by the tenants (I have been told that the life tenants in some projects have assigned their votes to the landlord or have been deemed to have done so. If this is found to be legally enforceable, the tenants' right to challenge acts of the landlord that fall within the Strata Property Act will be limited, which makes the appropriate lease terms more important.).
Principal Disadvantages of Life Leases general limitation
- upon the ability to sell, lease or mortgage (The tenants may not be able to assign, sublet or part with possession without the landlord's consent.);
- in the column 351 model, the inability to register the leases on title will likely prevent tenants from obtaining conventional mortgage financing (The model tries to overcome this by having the landlord arrange a blanket mortgage for all tenants who pay less than the full purchase price. That may not help tenants who want to borrow against their equities.);
- in the column 351 model, there is no provision dealing with the sponsor's decision to end its relationship with the development, thus there is no legal impediment appearing in the documentation to compel the company that holds title to the strata lots to transfer its shares to the tenants or to a company controlled by them (Since the tenants in this model are not entitled to capital gains, any realized gains would stay with the company that is the landlord. Although unlikely, a for-profit group to whom the shares are transferred and whose interests differ from those of the tenant might become the landlord. The lease does not deal with the problem created by financial difficulties of the sponsor which might lead to its bankruptcy.); and
- if some units are unsold, the landlord may lease them under conventional short-term leases (While this may be necessary, it can lead to a dilution of the benefits the life tenants expected and to disputes about the allocation of common expenses.).
While many of these disadvantages can be remedied by the addition of appropriate clauses, they do indicate the complexity of some of the issues surrounding life leases. Real estate and legal advisors need to be aware of these complex issues and must discuss them with prospective buyers.
Seniors who rely heavily upon the goodwill of the sponsor may not be as concerned as they should be about their legal position. The importance of a carefully thought-out agreement to govern these life-long relationships cannot be understated.
There is no legislation in BC that specifically addresses all aspects of life leases. For a licensee who needs to know more about this topic, the closest at-home guidance can be found by examining Disclosure Statements. There are currently over 30 filed with the Superintendent of Real Estate.
Further help in identifying problems may be available from Manitoba, where the Life Leases Act governs life leases. Ontario is also a good resource, because there are several life lease residences there, and groups like the Ontario Association of Non-Profit Homes and Services for Seniors advocate non-profit life lease projects. An article by Robert Vernon is also useful. It can be found on page 40 in the 37th volume of the 3rd series of the Real Property Reports, available in law libraries.
I made a general statement at the end of column 351 concerning the lack of consumer legislation and commented that disclosure to consumers is only required if a project is strata titled. In a discussion of life lease governance, subsequent to the publication of that column, I learned the position of the Superintendent of Real Estate: a disclosure statement is required where apartments in a building are leased under a life lease scheme, even though they are not strata titled.
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