THE TOP 10 ISSUES
By GRAHAM A. KNIGHT,
Corporate, Commercial/Trademarks Department
Issues and Answers in Six Major Practice
Areas
Ontario Bar Association
Life Leases
May 18, 2004
The comments which follow are based upon my experience,
directly and indirectly, with a number of life lease projects
in the Barrie area.
In the past decade in response to the need for affordable
housing, we have seen a proliferation of life lease of projects
in Ontario. They have often been sponsored by churches or
charitable organizations and have received support of the
public given that they provide housing, usually the seniors,
sometimes on an affordable basis.
A life lease project avoids the time and expense of creating
condominiums, and other projects which require subdivision
under the Planning Act. Life leases have apparantly found
an exception to part-lot control requirements under section
50 (9) of the Planning Act which permits agreements that
grant "the use of, or right in a part of a building
or structure for any period of years."
While the public policy goals of housing are laudable,
it is an area of practice where we would do well as solicitors
to appreciate where the pitfalls may lie and provide our
clients with sound advice in association therewith.
Our contact with life lease projects can arise either by
acting on behalf of the sponsor, or a member of the public
purchasing a new unit or a resale unit.
Acting on Behalf of the Sponsor
As life lease projects often target senior citizens, it
is important, as a professional, to determine whether the
sponsor has the expertise, the funding and the commitment
to tackle the job both in the planning, construction and
sales phase, and in ongoing resales in the future. If this
not abundantly evident, it is an exercise better left alone.
Your client should incorporate on a non profit basis.
Section 7 of the Charities Accounting Act R.S.O. 1990,
C.10, defines "charitable purpose" as the relief
of poverty, education, the advancement of religion, and
any purpose beneficial to the community not falling under
the three previous heads.
Section 8 of the same Act stipulates that "A person
who holds land for a charitable purpose shall hold the land
only for the purpose of actual use or occupation of the
land for the charitable purpose." Failure to observe
this provision permits the Public Guardian and Trustee to
vest the land in himself.
There have been, and continue to be, charitable non profit
organizations offering life lease units to the public at
fair market value, in competition with private builders
offering comparable units at market value.
In my view, regardless of the good will that may be associated
with the sponsor of a project, offering housing to the public
at market value is simply not a charitable endeavor.
There is a well known group in Ontario which hold themselves
out as life lease consultants who assisted a client of mine
in setting up a life lease project in the Barrie area. When
I challenged them on the section of the Charities Accounting
Act in question they informed me that the Act was archaic
and that for public policy reasons I should not worry about
the legislation being enforced. I continue to be astonished.
The documentation pertaining to the life lease project
should be well understood by the sponsor of the project,
be user friendly, and build in protections, where available,
to remove as much of the uncertainty about life leases as
possible.
In the projects I have participated in, we have taken great
care to make the documentation simple to understand, and
have identified and circulated drafts to lawyers in the
Barrie area for their criticism and comment prior to prospective
purchasers attending upon them for independent legal advice.
It is helpful to review the provisions of the Condominium
Act when drawing life lease documentation with a view to
matching or surpassing the protection contained in that
Act.
Avoid any obligation on behalf of the life lease corporation
to purchase a unit upon the death or departure of a resident.
This becomes more important as the number of units in the
project decreases. I favour a structuring whereunder the
unit holder or his/her representatives are obliged to take
carriage of the sale of the unit, first by reference to
any waiting lists which may be in existence, and second
to the general public. Documentation I have drawn has reserved
a right to the life lease corporation to purchase the unit
and in turn resell it, but only if they wish to do so. This
might be applied in circumstances where due to disinterest
a unit is allowed to stand empty and deteriorate to the
point that it is prejudicing the reasonable use, enjoyment
and value of the other units in the project.
Think through all the documents that you will need to use,
and have them organized and cross referenced in such a manner
that the sponsor minimizes both time and opportunity for
mistake in dealing with first buyers and resales.
Consider the degree of participation the residents will
have on the Board of Directors. Consider the opportunity
for use of committees of residents who report to the Board.
From the Purchaser's Point of View
A solicitor acting for a Purchaser of life lease unit should
be cognizant of the issues addressed above as same relate
to the Vendor.
When the first draft of this paper was done, it was appropriate
to pay land transfer tax on a life lease conveyance. The
proposed exemptions for transfers of life lease units as
set out in the March 27, 2003 Ontario Budget, and as addressed
in Tax Bulletin LTT2-2003 have not yet been approved. Ontario
Regulation 88/04, filed on April 2, 2004 now provides for
an exemption from land transfer tax for transfers of life
lease interests under certain conditions. The regulation
is effective from July 19, 1989. The exemption applies to
the purchase of life lease interests as they are generally
understood. The Regulation provides procedures for claiming
land transfer tax exemptions and for tax refunds.
Ontario Regulation 88/04 can be downloaded from the Land
Transfer Tax Act Regulation section available online at
www.e-laws.gov.on.ca.
It is important to identify what your client is looking
for in the nature of housing and why your client would have
chosen this project.
The following issues may also be of specific interest to
the unit Purchaser:
- The financial status of the sponsor.
- What specific provisions activate on the death of a
unit holder.
- What privileges or protections extend to that unit holder's
spouse.
- To what extent can the unit holder participate in management
of the project.
- To whom are deposits paid, and what protection is afforded
in relation to the payment of same prior to closing.
- What monies are set aside to address future capital
costs.
- What protection do I have in relation to a mortgage
on the property which has been taken out to construct
the project.
- In circumstances where commercial tenants, long-term
care facilities, or indeed any other use shares the same
building with people holding life leases, is there a stipulation
as to who bears what share of capital reserve charges,
unmetred utilities, maintenance charges, and the like?
The gray areas involved in life lease projects will be
flushed out over time. I would speculate that the impetus
for clarification in areas of uncertainty will be driven
politically following the failure of a life lease project
which has the potential of leaving seniors out on the street.
If a project you are involved in fails, sooner or later
there will be an allocation of blame. As a solicitor, go
in to a project of this nature recognizing this.
Notwithstanding the foregoing, it is my view that with
the right sponsor and the right vision, these projects have
an opportunity to create unique and interesting communities
in our towns and cities.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
