What is a Life Lease Property?
Life lease properties are a form of housing that carry a unique set of features, having some aspects of regular home ownership as well as some aspects of rental properties. In Canada, life lease communities are growing ever popular among seniors because of the amenities they offer, however, they don’t necessarily have to be seniors’ communities.
The idea with life lease projects is that they are designed to cater to a specific demographic, offering a set of services and amenities that relate to their residents’ lifestyles.
This can include seniors’ communities, communities for specific cultural groups, language-based communities, and more. Typically, they are developed and maintained by non-profit organizations, however, privately owned life lease projects also exist. The founders of these communities are called “sponsors”.
The sponsor is in charge of managing the community and the amenities it provides. The sponsors set out and enforce all of the rules, but are also responsible for making sure services are properly delivered to its residents.
How Do Life Leases Work?
Life leases, as mentioned before, are not quite like home ownership, but also not quite like renting either. When you purchase a life lease, you are actually purchasing the right to occupy that specific unit for the rest of your life.
The units can take any shape, being built as apartments, detached houses, rows of townhomes, and so forth. It’s important to note that residents do not own the buildings or land associated with the lease, however they simply own the right to reside there.
The title to the land remains in the name of the sponsor throughout the process. The resident may have a notice of lease attached to the documentation for the land title which states that they have a right to occupy the unit even though they are not specifically on the title.
The duration of the life lease is typically until the end of the resident’s life.
Living in a Life Lease Community
Life lease opportunities are usually attractive because of the community aspect as well as the services provided. The sponsor does their best to cater to a specific demographic, curating amenities and guidelines to create the ideal environment for their residents.
The first thing to note is that one typically has to apply to live in a life lease community. When putting in an offer to purchase a life lease, you would have to go through the sponsor’s application process as well to see if you meet the criteria to live in that community.
As an example, for seniors’ communities there might be an age limit when applying. Other criteria might include rules about number and size of pets, whether smoking is allowed, and so on. Specifically with seniors’ communities, it is important that the facility is able to accommodate their needs in terms of day-to-day living as well as in terms of healthcare .
For example, they provide assisted living services to residents, however, they might not be able to accommodate someone who requires specialized or intensive medical care. Similarly, they might not be able to accommodate someone who cannot live independently at least to some degree.
These steps are important to consider when deciding to opt for a life lease versus a specialized care facility for elders.
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In terms of the experience, living in a life lease can be best described as a condominium that is much more “hands-on”. Similar to a condo, there are common areas and amenities provided. There is also a resident board that helps make sure that everything is running smoothly, managing activities and taking in feedback from residents.
Also similar to condos, there are monthly fees that need to be paid. The fees cover the costs of managing the common areas, providing basic services like shoveling the snow, collecting garbage or raking leaves, contributes to the organization’s reserve fund, and so forth, similar to condominium corporations.
Where life leases take it a step further is the fact that they provide additional services that can be fairly specialized. This includes activities, events, assisted-living services, and even meals in some cases. The way these costs are managed varies from organization to organization.
In some cases these are services you can subscribe to, in other cases they are all included into the monthly fee (and cannot be opted out of). While it may seem like a lot of additional expense, the appeal of these communities actually comes from the environment they provide.
Each organization tries to promote a specific lifestyle, where people of similar demographics can come together and have a neighbourhood of their own. What they offer goes beyond the basic features of a condominium and actually strives to enrich the lives of their residents.
This is especially so with sponsors who are non-profit organizations because their goal is more than just simple property management. They usually have a larger vision they wish to achieve, and without the pressure to generate profit, these organizations can actually focus on making sure their residents are happy.
When looking at a life lease property, you should make sure to ask as many questions as possible about the lifestyle there and what the organization has to offer. At the same time, you should be sure to familiarize yourself with the rules and policies in place as well as the costs that you will be responsible for.
When tackling things such as renovations, the sponsor may have rules set in place regarding the kind of work that can be done as well as the procedures involved. Sometimes they may go the extra mile and perform the renovations themselves, other times residents might be permitted to go just ahead and do their own renovations (provided it is compliant with guidelines).
Pricing for Life Leases
When it comes to pricing a life lease property, most life lease projects are actually priced according to the local real estate market, following what is called the Market Value model. Simply put, a life lease property will trade for the same price that other regular homes similar to it would sell for.
The process is dictated by supply and demand, exactly like the rest of the real estate market. When it comes to assessing a price for sale, a specialist would be called in to perform a comparative market analysis.
The analysis takes a look at similar properties that are listed or have been listed in the area. The process takes into account the size and style of the properties relative to the life lease being priced, and also takes a look at listings that have either sold or expired in the past.
This paints a picture of what prices different homes sold for, what prices are being asked for currently in the local market, and also what prices have failed to sell in the past (and therefore expired).
After gathering all of the information and adjusting it to apply to the property being marketed, the sponsor can proceed to put the property on the market. The prices of life lease properties therefore fluctuate and grow with the rest of the market and are traded as such.
The only exception one might find is that life leases tend to be just a little bit cheaper on average compared to similar homes, usually to compensate for the fact that residents have to commit to paying monthly fees.
It may be a bit odd to think of a lease being traded at roughly the same market value as a fully owned property. We are all familiar with the concept of subletting or transferring a regular lease to another renter, but none of the above behave quite like that.
This is where the term “lease” in the name may become a bit confusing as it isn’t the type of lease we are used to hearing about day-to-day. Nevertheless, it is still a lease and it can still be bought and sold for market price.
So how does this work? It’s actually quite simple. The buyer receives what is called a “right to occupy” that land, and that is something that can be owned. In other words, the buyer is purchasing a contract that gives them the full right to reside in the unit and that contract is theirs to own.
This right, and the benefits that come with it, are therefore owned by the person who bought it. Even though the buyer doesn’t get to own the building or have their name on the title of the land, they do get to own the exclusive right to reside there.
Therefore, it’s easiest if you think of this contract more so as an asset. This asset, just like any other, goes up or down in price with the local market and can appreciate or depreciate in value similar to regular real estate.
This also means that, in a good market, life lease owners are able to have their homes appreciate in value similar to regular homeowners.
It’s also important to mention that life lease contracts, aside from the maintenance and service fees, do not come with a commitment to pay monthly rent as the case would be with regular residential or commercial leases.
This again is covered by the fact that there has been a market price paid upfront.
Buying a Life Lease
The one piece of advice that simply cannot be emphasized enough is the fact that you should take the time to get acquainted with the sponsor and their policies. The key aspect of these communities is that the sponsor does have the final say in everything that happens.
This means that once the purchase is complete, you are committing to following all the rules that are set in place by the sponsor. These rules can dictate everything from small details all the way to who is eligible to apply to live there, and also influence the financial process.
The contract agreement with the sponsor can actually be very complex, so it is always recommended to have a lawyer review it.
In addition to reviewing the regulations, you should inquire about the expenses involved and the financial status of the organization. Similar to a condo, the sponsor provides a range of services while charging monthly fees. They also keep and maintain a reserve fund for emergencies.
When considering a life lease, you should get to know exactly what will be provided to you, how much that will cost, and also how that will be paid out. Are there services you can opt into or out of?
Or is everything included making the full fee mandatory?. The status of the reserve fund should also be verified. You should ask yourself, is the organization prepared in case of a large repair or an emergency?
Will they leverage additional fees from the residents?
Once the technical details are out of the way, you should of course ask yourself if this is the kind of community you would want to live in. As mentioned, the main appeal of these projects is that they cater to specific demographics and lifestyles.
Before jumping in, you should make sure that the community aligns with your lifestyle as you desire it.
Selling or Transferring a Life Lease
When it comes time to sell, the owner of the rights to the unit is able to put the “property” (so to speak) on the market and sell it to someone else. The property is typically assessed and marketed by someone assigned by the sponsor themselves and must comply to their policies when it comes to “listing” a unit.
There are some important considerations to the process, however. First and foremost, the sponsor may actually opt to have the property sold at market price to someone on their waiting list if they have applicants waiting to get in.
Otherwise, if the property is to be put out on the market, the application and screening process will still be in effect. This means that the potential buyer must meet the criteria for living in the community just as the seller initially did.
If the buyer does not qualify, the sale cannot go through.
If a potential buyer meets the sponsor’s criteria, you should be aware that the sponsor retains what is called the “first right of refusal”. This means that for any qualified offer that has been made, the sponsor can actually turn around and offer you the same price, thereby voiding the initial buyer’s offer.
This makes it so that they can override any particular offer without putting the seller at a disadvantage because they receive an identical offer from the sponsor. This is, however, bad news for the buyer because it nullifies their offer completely (despite being otherwise qualified).
Once the deal is fully accepted, there is one more hurdle to clear. Sponsors usually take a percentage of the sale price in the form of an administrative fee. This is between 5% and 15% of the selling price, however it can be higher or lower depending on the organization.
The fee is in place to cover administrative costs of qualifying and transferring ownership to someone else. After all of the above, the final paperwork is completed and the new resident can move in on a specified date.
There is also the special case of ownership being transferred after a resident passes away. This can become troublesome if their spouse, for example, isn’t registered on the lease and was simply living with the resident (similar to a matrimonial home scenario).
The sponsor would then have to transfer ownership of the lease to the surviving spouse and, similar to any new resident, they would actually have to go through the application and screening process. The rules and specifics for this scenario vary from sponsor to sponsor, but they are usually more flexible when it comes to qualifying a surviving spouse to have the lease transferred to them.
If there is no spouse involved, a different scenario could be the resident passing away and having family members inherit the life lease. There is a way to go about this, however, the qualification process applies once again.
When it comes to family members that are not a spouse, the eligibility rules are typically more strict, similar to a regular applicant. This means that if a resident’s grandchildren were to inherit the life lease, they might not be able to actually live there if they don’t meet the criteria as a normal applicant would.
In this case, they would simply sell off the contract to a new buyer that does qualify and they would retain the money from the transaction (after all fees and charges owing are settled with the sponsor).
Exceptions and Terminations
By now, it should be quite evident that a major feature of life lease projects is the screening of those who reside there. This is to ensure that the environment and resident base conform with the overall vision of the founding organization.
Some exceptions to the rule can include live-in caregivers in the case of seniors’ communities. As always, different sponsors will have different policies on the matter, however, exceptions are typically made for designated caregivers. Similarly, exceptions to pet rules are made when it comes to service animals that the residents rely on.
Finally, potential residents should be aware that the sponsor does have the right to terminate the lease under certain conditions. It definitely cannot be done arbitrarily, however there are some situations in which the sponsor can exert that right.
If a resident is consistently non-compliant with the rules or is causing a disturbance, the sponsor may be in a position to take action. This becomes a particularly important scenario with elder communities if the resident becomes unable to live independently or starts posing a safety risk to themselves or other residents.
Sponsors are usually compassionate and proactive on this front, trying to contact family members or other support networks the resident may have. This is in an attempt to reach the best possible resolution for the safety and comfort of the resident.
Nevertheless the sponsor does have the final say in what needs to be done. Should a life lease be terminated, the resident is reimbursed the value of the lease and the sponsor then assigns the unit to someone else.
There is a lot to consider when considering a life lease property and different communities will always have different things to offer. At the end of the day, it can be quite a beneficial arrangement as it tries to cater specifically to certain lifestyles.
You just have to make sure you take time in your search process and do your best to absorb all of the information needed to make a fully educated decision.