Life Leases

By Taylor McCaffrey LLP on 2013/04/17

What Is A Life Lease And How Does It Work?

It is a rental arrangement, but it is unusual because the tenant makes a cash contribution (not an investment) in the rental unit of an agreed upon amount – perhaps around $150,000.

When the tenancy ends, for whatever reason, the tenant is entitled to its cash contribution returned. If the tenancy ends in the death of the tenant, the money is payable by the landlord to the tenant’s estate.

That does not mean that there is no monthly rental, but the monthly rent will be less that renting an equivalent apartment suite, because the tenants, as a group, have paid a substantial part of the capital cost.

In simple terms, under a Life Lease the tenant’s rent will be less than if renting a comparable apartment, and the tenant’s financial contribution (called an entrance fee) is much less than would be required if the person was buying a condominium.

How Does It Begin?

The typical Life Lease development project is a real estate development initiated by a service club or a religious organization for the care and benefit of its members and supporters. There can be private (for profit) Life Lease projects, but they are the exception.

Usually there is a minimum age restriction of 55 or 60 or 65.

The sponsoring group establishes a not-for-profit corporation which becomes the landlord.

The Manitoba government passed legislation (The Life Lease Act) and some regulations, to ensure that when a tenant contributes monies to a Life Lease project, the funds are properly spent (a lot of Consumer Protection provisions). They are used to pay part of the construction costs, and some funds are set aside to pay back the entrance fee when the Life Lease comes to an end.

The legislation requires that the tenant’s cash contribution – the entrance fee – be turned over to a licensed trustee. It is part of the trustee’s functions to approve the capital contribution or entrance fee funds in the construction costs. Thereafter, the trustee looks after the “refund fund” that is used to reimburse the tenant, or the tenant’s estate, when the Life Lease ends by death or otherwise.

Once the project is up and running, the landlord is required (mandatory) to provide financial information to the tenants on an annual basis. Rent increases may take place as costs increase, but any increases are subject to review.

Financing A Life Lease Project?

The usual pattern is similar to the financing of an apartment complex or a condominium development. The landlord, with the support of the sponsoring organization, obtains a bank loan to cover the majority of the capital costs. However the entrance fees paid by the initial tenants reduces the landlord’s required contribution. A 50 unit development, and with entrance fees of $150,000 for each tenant, provides the landlord with a potential tenant capital contribution of $7,000,000. Not all of the entrance fee funds can be used for construction purposes, because some of the funds must be held back in a “refund fund”. The purpose of that fund is to repay the entrance fee when the tenancy ends. But the landlord can usually count on the replacement tenant to pay an entrance fee that will be used to satisfy the liability of the departing tenant.

So there is the inevitable first mortgage to a bank or credit union.

There will also be a second mortgage intended to secure the investment of the tenants. If the development turns out to be a financial failure for whatever reason, the second mortgage will be available to protect the interest of the tenants.

For the lender there can be other protections. For example, the development can have a condominium sub-structure, so that, on a foreclosure, the development can be converted into a condominium complex and the units separately sold or rented – subject to the rights of continuing tenants.

What Are The Benefits And The Drawbacks Of Life Leases?

First the Benefits

a) The tenant becomes a resident in a development in which the landlord genuinely cares about the welfare of the tenants, and the project is run on a not-for-profit basis.

b) The tenants find that they are part of a community of like minded people with common interests, and common activities, with people of their own age.

c) The rent is reasonable and their financial contribution (the entrance fee) is safe from the vagaries of the investment market.

d) Additional financial contributions by tenants (second security fund) are pooled and are used to reduce rent payable by those tenants (prorated based on contributions).

The fact is that most people like the experience of living in a Life Lease development. There is a high degree of satisfaction.

The Drawbacks

a) There is always the danger that the people in the sponsoring organization (whose members usually make up the majority of the board of directors of the Life Lease Corporation) will grow old and tired, and it will be difficult to find replacements. That can create an “unholy mess”.

b) There can be delays in obtaining the return of the tenant’s refund of the entrance fee – because there are too few replacement tenants. Most Life Lease projects cannot support a mass exodus of tenants. Not enough monies set aside in the refund fund.

c) In good economic times, an investment in a privately owned home or a condo has the expectation of a capital gain on the investment, which is usually not available under a Life Lease.

DISCLAIMER: This article is presented for informational purposes only.  The views expressed are solely the author(s)’ and should not be attributed to any other party, including Taylor McCaffrey LLP.  While care is taken to ensure accuracy, before relying upon the information in this article you should seek and be guided by legal advice based on your specific circumstances.  The information in this article does not constitute legal advice or solicitation and does not create a solicitor-client relationship.  Any unsolicited information sent to the author(s) cannot be considered to be solicitor-client privileged.

If you would like legal advice, kindly contact the author(s) directly or the firm's Managing Partner Norm Snyder at, or 204.988.0302.