How does a life lease work
LIFE LEASE QUESTIONS
WHAT IS A 'LIFE LEASE'?
There are five different styles of Life Lease in Canada. The Life Lease model that we use is based upon a non-profit corporation obtaining a bulk long term mortgage and the Life Lease residents providing a Refundable Entrance Fee and paying a proportionate share of the monthly operating costs.
This "Life Lease" model requires the residents contribute a sizeable "deposit" to help finance the cost of developing and constructing the Project. Payment of this "Refundable Entrance Fee" not only provides security of tenure but also reduces the resident's monthly payments. The "initial residents" commitment and deposits to the project prior to construction allows the sponsors of the development to design building features specifically for the residents needs and to lower the monthly rents.
A "Life Lease" may be terminated with notice the same way as any regular residential lease. The entrance fees are refundable upon termination from the Entrance Fee Refund Fund and by replacement from the waiting list under conditions outlined in the lease agreement (and governed by legislation in Manitoba).
WHAT IS THE ENTRANCE FEE?
The Entrance Fee is the amount of a "deposit" required to purchase the Life Lease. For instance in the case of the Southward Villa, Kenora, minimum entrance fees range from $33,254. to $51,744. dependent on suite size. Maximum entrance fees are limited to the actual cost of the suite to the Corporation.
CAN I PAY MORE THAN THE MINIMUM ENTRANCE FEE?
In most projects - yes. An increased Entrance Fee would directly reduce your monthly costs. For example, if the Minimum Entrance Fee for your suite was $33,254. and you wished to increase your lease amount by an additional $50,000. 100% of the interest earned on the additional investment would be applied toward lowering the monthly operating costs of your suite. This second security fund money would be refunded upon termination of the lease.
WHY IS THERE NO INTEREST PAID DIRECTLY TO ME FROM MY "MINIMUM ENTRANCE FEE" ?
The major portion of the Minimum Entrance Fee goes directly toward the construction cost of the building. As such, this money collects no interest but reduces the debt associated with the building, therefore reducing the monthly payment amount required to be paid by the resident.
The balance of your Minimum Entrance Fee is invested in a trust account called the Entrance Fee Refund Fund. This fund is established to allow a tolerance for repayment of terminated leases prior to releasing. The Refund Fund collects interest, and this money is used to offset the Life Lease residents monthly operating costs.
This interest is not paid directly to the resident but is applied toward the total operating costs of the building. Interest earned by the corporation is not deemed as taxable income. Interest is earned by the corporation, not the tenant.
Participation in the optional Second Security fund over and above the Minimum Entrance Fee generates income to the corporation. The Not-For-Profit Housing Corporation uses this interest to reduce your monthly operating cost. The Not-For-Profit Housing Corporation's income in "non-taxable income".
DOES THE VALUE OF MY ENTRANCE FEE APPRECIATE IN TIME?
Historically, in the Manitoba Life Lease Model which we use most often, the Minimum Entrance fees have neither appreciated nor depreciated in value over time. The purpose of these developments is to provide stable, viable and affordable. not-for-profit housing for the life of the Project. In Manitoba Life Lease Projects Minimum Entrance fees are normally refunded at their original value regardless of time and or market conditions. In other Life Lease models where "appreciation" is allowed, residents normally finance the total cost of their suites independently without the assistance and benefits of a bulk long term mortgage - in a similar fashion to a condominium.
HOW SECURE IS MY EQUITY CONTRIBUTION?
The Manitoba Life Lease model was developed by the Provincial Government in an attempt to provide a non-profit housing vehicle to offset the ever-rising need for housing from an aging population. Consider the following: