There has been a lot of interest of late in the concept of life leases, but what is a “life lease” exactly and what are your rights as a life leaseholder?
Life leases are typically explained as an arrangement that lies somewhere between renting and owning your residential property. The life lease holder usually pays an upfront charge or an “entrance fee” in an agreed upon amount (which can be hundreds of thousands of dollars), and in exchange, obtains the right to occupy a particular housing unit for the remainder of their life or until they choose to move out. This does not mean that there are no ongoing costs, and life leaseholders are typically also required to pay regular maintenance costs as well. At the end of the life lease, the initial “entrance fee” is returnable to the life lease holder or their estate, typically minus some form of administration charge by the landlord.
Contrary to popular belief, life leases are really not a “new” concept. Though they may not be historically popular in Alberta, the idea of granting some form of security of tenure for the right to occupy and use land is a historic concept going back to feudal times. This is essentially the fundamental principle of leases in general, with the tenant having a tenurial interest in the property under the terms of the grant of a leasehold estate, which is an estate in land subordinate only to the owner’s interest. A life lease or a life estate is, fundamentally, just a form of leasehold estate where the periodic tenure in the land lasts for the duration of the “tenant’s” lifetime.
Life leases are often marketed as an alternative form of seniors’ living that may provide long-term stability for residential living. The following are some of the typical, advertised advantages to life-lease arrangements:
- The ongoing monthly maintenance fees are charged on a cost basis, with no profit component and therefore life leases are more affordable than renting or buying.
- Depending on the terms of the arrangement, life leaseholders may have security of tenure in their housing unit, often registered through a mortgage.
- The initial financial charge/entrance fee is protected by such a mortgage in the property itself and is therefore safer than more volatile forms of investment or saving.
- Residents in a life-lease development may enjoy the benefits of common amenity facilities and participate in a community of like-minded people with a landlord or property manager who has a vested interest in maintaining the property for their collective benefit.
Unfortunately, all of these supposed benefits are subjective, and entirely depend on the nature of the arrangement between landlord and life leaseholders, which may naturally be in place for decades before the life lease comes to an end. The following are some notable drawbacks to the life lease model:
- In order to “pay out” individuals or estates at the end of their term, the landlord may either require independent financing or will have to find a replacement person to take over under a new life lease, leading to a backlog which can delay payments.
- Where there are such delays in obtaining the return of the tenant’s refund of the entrance fee – because there are too few replacement tenants – it is likely that the project cannot support a mass exodus of tenants.
- In good economic times, it is generally the case that a privately owned home or condo unit has the expectation of a capital gain, which is usually not available under a life lease.
- Alternate forms of residential arrangements, like housing cooperatives, may also provide the same advertised benefits of lower monthly housing charges than market rents, but without as significant an upfront entrance fee.
Currently, Manitoba is the only jurisdiction in Canada with specific life lease legislation, with other provinces, including Alberta, largely leaving parties free to contract their own terms for such arrangements. Life lease landlords will often include contractual language that provides that the “tenants” do not obtain any registrable interest in the property itself, including the registration of their leasehold interest or even a mortgage security in some cases. In the case of a mortgage interest in particular, it may be the case that the landlord instead offers “security” through a form of trust, controlled by it on behalf of the life leaseholders. In this way, the landlord, through various corporate entities it owns/controls, retains control of all registered interests in the property.
While there is no legislation in Alberta specific to life leases, it is not truly the case that long-term leases are completely unregulated in the province. Under s. 32 of the Land Titles Act (the “LTA”), a tenant of a leased estate in land for life or for a term of more than three years, may apply to have the Registrar of Land Titles issue a certificate of title issued for their leasehold interest. This is known as a “leasehold title” and is registered against the landlord’s interest in the property, which becomes subject to the leaseholder’s interest for the period of the lease, generally preventing the landlord from doing anything with the property without the leaseholder’s consent.
For this reason, life lease landlords will generally seek provision in their life lease contracts that prohibits the registration of any interest in the land itself, effectively waiving the application of the leaseholder’s rights under the LTA. Without the right to register their leasehold interest or even without any effective security or notice on title, such as a mortgage or caveat securing and establishing their interest in the property, life leaseholders can be left exposed, with no security for their tenure in the property and with no effective means of obtaining reimbursement for their “entrance fee,” except by way of an unsecured claim under contract.
As an arrangement of residential living, life leases are an alternative with potential benefits, but also serious draw backs. Any benefits entirely depends on the particulars of the life lease contract and the ability of the landlord to satisfy their obligations at the end of the term. Life leases do not offer the same inherent security that one would have with ownership of a condominium unit, where the resident has actual equity in the property and the ability to sell on the open market when they wish to move out. Nor do life leases offer the flexibility and benefits of cooperative housing. Albertans considering life lease arrangements should therefore do their due diligence before signing a life lease contract, to make sure the specific arrangement will be suited to their needs.
If you have any questions about life leases, please reach out to a member of Miller Thomson’s Condominium & Strata Group.
