A life lease is a rental arrangement where the tenant makes a cash contribution called an entrance fee at the start of their tenancy. When the tenancy ends, the full entrance fee is returned to the tenant (or their estate in the event of death).
The entrance fee is held in trust by a third-party trust company. The developer is not able to use or access that money, however, they can borrow against it to complete the project with less equity than would be required under a traditional multi-family residential construction project. The developer must also contribute a certain amount of entrance fees to be held in trust in the event of multiple move-outs.
The benefits of a life lease include:
- Tenants find they are part of a community of like-minded people with common interests and of similar age and values.
- The rent is reasonable and their entry fee is safe from fluctuations in the real estate or investment markets.
- The entrance fee generally allows for tenants who care for the property and take pride in the appearance of their community.
- If circumstances change in a tenant’s life, only three months’ notice is required to move out and have the full entrance fee returned. This gives tenants peace of mind instead of having to worry about selling their home if they wish to relocate.
- Although the entrance fee is not earning interest, the contribution itself helps by saving monthly rent as a portion of the equity required for the project is funded by the tenants. The entrance fee is also substantially less than it would cost to purchase a house or condo so tenants have the freedom to invest their available equity.
- A virtually maintenance-free lifestyle is appealing to many! Especially those who travel or are physically restricted. Residents in a life lease unit are not responsible for any of the maintenance to the suite itself. A broken fridge or leaky window is just a maintenance call away from being repaired.
- The ability to add your own personal touch. Those living in a life lease often have the option to make minor changes to their unit such as adding a backsplash, changing the countertop, etc with the approval of their property manager.
If this type of rental arrangement sounds like it could be for you, click here!
