Life lease housing can take on a variety of forms. Each model is based on how the initial price is set and how the life lease interest is then resold. The five basic models are:

  • market value
  • price index
  • fixed value
  • declining balance
  • zero balance

Market value

Market value life lease projects are popular in Ontario. If the holder sells the life lease interest for more than they originally paid for it, the holder (or their estate) makes a profit. If the holder sells the interest for less, then the holder (or their estate) incurs a loss.

Most market value life lease agreements allow the holder to transfer the life lease interest to their estate. This means that, technically, the lease lasts longer than "life.” While the holder’s inheritors may profit on the sale of the lease, they may not move into the unit without first applying to the sponsor and meeting the sponsor’s eligibility criteria.

The holder (or their estate) is responsible for selling the life lease at a rate the market will bear. The sponsor may assist by assessing unit value, contacting prospective buyers from the waiting list and brokering the sale. The sponsor retains a percentage of the sale price as an administrative fee. If the holder also retains a real estate agent, their fee is additional.

Benefits

If real estate values go up, the holder can make a profit on the sale.

The value of the life lease is not tied to the age or length of occupancy of the resident.

Considerations

If real estate values go down, the holder can lose money.

If the holder passes away, their inheritors will have to sell the unit and pay monthly fees until the unit is sold. This may be an important consideration if they live far away.

Price index

The sponsor purchases the life lease back from the holder (or their estate) over the length of their occupancy. The sponsor increases the original amount paid by an annual price index factor, usually the Consumer Price Index. The sponsor retains a percentage of the sale price as an administrative fee.

Benefits

Even if real estate values go down, the holder is guaranteed not to lose money.

If the holder passes away, their inheritors do not have to worry about selling the home or paying monthly fees.

Considerations

The holder’s estate will no longer hold the life lease interest once it is fully repaid by the sponsor.

If real estate values go up, the holder (and their estate) will not profit.

Fixed value

This is also called the “no gain” model. The sponsor purchases the life lease back from the holder (or their estate) for the same amount originally paid when the holder purchased the life lease. The sponsor retains a percentage of the amount as an administrative and refurbishing fee.

Benefits

Even if real estate values go down, the holder is guaranteed not to lose money.

If the holder passes away, their inheritors do not have to worry about selling the home or paying monthly fees.

Considerations

The holder’s estate will no longer hold the life lease interest once it is fully repaid by the sponsor.

If real estate values go up, the holder (and their estate) will not profit.

Since this model does not take inflation or market value into account, the money the holder invested loses its value over time.

Declining balance

The amount the holder pays up front is based on the value of the unit and their life expectancy. The amount the holder or their estate will receive declines by a specific amount each year until it reaches zero. As with the Zero Balance model, this model may be thought of as prepaid rent.

Benefits

The initial payment is typically lower than it is for market value, price index, or fixed value models.

The holder’s right to occupy the unit lasts for their lifetime, even after the redemption value declines to zero.

If the holder passes away, their inheritors do not have to worry about selling their home or paying their monthly fees.

Considerations

The holder’s estate will no longer hold the life lease interest once it is fully repaid by the sponsor.

If real estate values go up, the holder will not profit.

If a health issue forces the holder to leave earlier than they expected, this may or may not impact the amount of money that the holder or their inheritors receive back from their initial payment.

Zero balance

The holder pays an amount upfront designed to prepay rent for the rest of their expected remaining life. The amount paid is based on the value of the unit and the holder’s life expectancy.

Benefits

This is the least expensive form of life lease housing.

If the holder passes away, their inheritors do not have to worry about selling the home or paying monthly fees.

Considerations

The holder’s estate does not inherit the life lease interest, which returns to the sponsor at the end of their occupancy.

No residual value is paid to the holder or their estate if the holder passes away or decides to move elsewhere.

If a health issue forces the holder to leave earlier than expected, this may or may not impact the amount of money that the holder or their inheritors receive back from their initial payment.