What I Learned from a 48hr Research Blitz into Life Leases
More and more life lease options (especially pre-construction projects) are popping up in and around the GTA. I’ve been on tours for two of them now, and several parents of friends have bought in. What makes a Life Lease attractive for aging families? What are some key considerations if you are exploring this? Dive into what we learned this past week as my parents explored putting in an offer for Life Lease (with an expectation to sign within 48hrs!)
Disclaimer: All contracts are unique so before moving forward with any agreement, please ensure you do your own research and/or seek advice from professionals. We are also not intending to advocate for or against life leases. This is simply a sharing of learnings so help you explore your options.
Life Lease is a right to occupy a designated unit (and any associated parking spot(s), locker etc.) within a Life Lease building. In contrast to condo ownership, a Life Lease owner does not actually “own” any land or part of the building itself
As a result, few lenders will offer a “mortgage” for a life lease as it cannot serve as collateral. Most will have to arrange financing via a line of credit of some sort, and/or sell their existing property to transfer funds to purchase. Other options such as Reverse Mortgages may be available, although you should check with your bank or financial advisor for more information.
Most Life Leases are “market-valued” – which means it can sell for whatever market value a buyer and seller determines. The sponsor organization (i.e. building owner) may require payment of a % of sale price (e.g. 10% of the transaction price, etc.). Some life leases also have eligibility requirements for buyers as well as eligibility requirements for residents. This also means that upon selling a Life Lease, you can incur a profit (market value has increased) or incur a loss (market value has decreased). Other forms of ownership, which are less common, include Price Index, Fixed Value, Declining Balance, and Zero Balance (see document pg 42-43 of the Ontario Life Lease Guide)
The value of a Life Lease is highly dependent on the “desirability” for a buyer to live in the building and neighbourhood. As a result, the quality, upkeep, reputation of the building and management are major factors to consider. Unlike condos, Life Leases are not required to conduct regular Reserve Fund studies, although well maintained ones often will do so to ensure they are not in excess or deficit.
Life Lease owners will pay monthly maintenance fees for shared and common areas very similar to Condo owners. They will also pay a portion of property taxes for the building.
Buying/selling are typically not part of the MLS or mainstream real estate transaction platforms, although a seller may enlist an agent to assist with the process. Typically, there are more restrictions in the transaction process (e.g. buyer eligibility, right of first refusal, and criteria for what an agent can/cannot do, or earn commission for, etc.). As these restrictions can reduce the buyer pool, purchase price is typically lower than a condo for the same area, age of building, and square footage. In reality, any buying/selling activity may take longer than a traditional real estate sales process, as it takes more time for buyers/sellers to match up.
Interestingly, Life Leases are not directly governed by any specific legislation in Ontario, although general legislation such as The Fire Code, The Building Code, The Planning Act, The Ontario Human Rights Code, etc.. do apply; unlike condos or rental housing which is regulated under the Condominium Act and the Residential Tenancies Act respectively. This means any disputes or legal matters will refer to Contracts Law or case law. If anything, this is more concerning for an owner of a life lease as typically legislation offers more consumer protection over and above Contracts law.
Some Life Lease agreements will allow for Title Registration which offers the buyer greater protection (and potentially access to more financing options). Check your paperwork to explore this option!
Life Leases buildings can be owned by for-profit or not-for-profit entities. Although when the sponsor is a not-for-profit, and the buyer intends to reside in the Life Lease unit, the purchase is exempt from Land Transfer Tax (see pg 8 of the Ontario Life Lease Guide)
For the right family and financial situation, Life Lease can be an attractive option for aging families because it offers a condo-like carefree lifestyle with aging-in-place amenities. Most aging-oriented life leases have defined criteria for who can reside in the building (i.e. over the age of 65, etc.). Traditionally, these have been operated by religious, ethnic, or charity groups that serve specific populations, and therefore programming and amenities may cater to certain lifestyle or cultural preferences.
Some sponsor organizations also offer elder-friendly services inclusive in the maintenance fees, a community-based lifestyle and other programming, especially if they are affiliated with assisted living, retirement home, and/or a long-term care facilities. All of this makes “graduating” to higher levels of needed care more adaptive and seamless.
What remains curious to me is the lack of regulatory framework for Life Leases, especially as it gains popularity. Surprisingly, even time-shares (that are a fraction of the value you’d pay for a Life Lease) have better consumer protection! So make sure you thoroughly explore the sponsor organization before making any final decisions.
Ultimately, my parents did not pull the trigger for this particular property. They totally fell in love with the building, amenities, affordability, and management (which will make good content for a future blog post!). Through our due diligence process, we learned that a major redevelopment project has already been approved on a nearby plot of land. This would mean years (potentially 5-6 years!) of construction nearby, and an additional 12 new residential buildings with 4,400 new residential households - a huge increase in density and congestion within the neighbourhood. All in all, they felt it was too risky to buy now, and opted to “wait and see” how the neighbourhood may evolve once the redevelopment is complete. But alas, we did learn a ton!
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Additional notes: we reviewed our blog post with Ontario Barrister & Solicitor, Alexander Sung. Please note that the scope of review was on specific points posed, and not meant to be exhaustive. Please seek the advice of a professional for your situation as no two individual's requirements are the same.