Community Dialogue - Life Lease 101 (Key Takeaways)
We hosted our first Community Dialogue on Life Leases 101 this week! Thank you for all who joined us, and especially to Brian Kwan who offered his legal perspective on the pros/cons of Life Leases, and what to be mindful of as potential buyers.
Our Key Takeaways:
Life Leases represents an interest in a property that offers a “right to occupy” a specific unit (inclusive of any parking, or locker assignment) for a period of time, typically a “life time”. Unlike condo ownership, a life lease does not offer fractional ownership of the land or building, and often does not come with a deed.
As such, mortgage financing is not typically available, and one will need to tap other sources of funding (e.g. line of credit, or reverse mortgage, etc.) to pay the upfront purchase price
One of the primary considerations for a life lease is the quality of the “sponsor” – who owns the land and building, and typically manages the operation of the life lease. When researching the quality of a potential sponsor, look for the following:
Mission and purpose of the not-for-profit sponsor organization (e.g. does it have one defined?)
Prior development and building management experience
Reputation and years in operation, and in particular, any experience with seniors (e.g. some sponsors also operate Retirement Homes or Long-Term Care, and be sure to explore any historical issues or infractions issued by Ministry of Health)
Reserve fund study if available
Other considerations in the agreement: opportunity to review with lawyer, cooling off period, any other buyer protection such as deposit protections, etc.
Because Life Leases are designed for a particular type of lifestyle/community living, the sponsor may have eligibility criteria for buyers and residents, and control other aspects of the buying/selling process. This reduces the potential buyer pool for Life Leases, and is also reflected in a lower purchase price as compared to similar sized condos and neighbourhood. Also, if the buyer intends to reside in the unit and the Life Lease is operated by a not-for-profit, land transfer tax may be exempted.
Ultimately, all of this comes down to risk tolerance. Life Leases are generally less regulated than other forms of property ownership, and also may not create the same ROI as other real estate investments. However, if your family is seeking a seniors-friendly type of lifestyle that allows for “graduated” care within the same sponsor organization into retirement home / long-term care, this could be an attraction option.