To provide information on how the Municipal Property Assessment Corporation (MPAC) values Life Lease properties.
Section 19(1) of the Assessment Act provides the authority for the valuation of life lease properties at their current value.
Ontario Regulation 282/98, Section 3(1) 1.x. includes life lease properties in the Residential Property Tax Class.
A “life lease” property is a form of housing tenure in which individuals purchase the right to occupy a residential unit for a specified period of time (i.e., for their lifetime, or, a defined term of 49 or 99 years). In Ontario, “life estate”, “life tenure” and “equity lease” are other terms that have been used to describe similar arrangements.
Agreements may be referred to by a number of terms such as:
- Life Lease Occupancy Agreement
- Life Lease Tenancy Agreement
- Occupancy Agreement
- Right to Occupy Agreement
Life lease projects are usually developed or sponsored by community-based, non-profit organizations (i.e., non-profit housing, service clubs, ethnic community or faith-based groups) that are interested in providing housing to seniors who desire to live independently in a retirement community setting. Some municipalities have also sponsored life lease projects.
A life lease project may be developed as apartment buildings, townhouses, detached homes, or any combination thereof.
In all lease arrangements, the sponsor retains the actual ownership of the project and the individual units. The purchaser of a life lease unit acquires the right to occupy the residential unit and to use any common amenities and services which form part of the life lease project, i.e., recreational facilities, health services, housekeeping services, etc.
Registering a life lease agreement on title in the registry office varies from project to project. The purchaser of a life lease unit is responsible for paying monthly maintenance fees to cover such costs as administration, landscaping, utilities, reserve fund building insurance and property taxes.
When occupancy ends, the unit may be resold at its market value. Both the sale and re-sale terms are detailed in the agreement between the sponsor corporation and the individual unit occupant.
The life lease agreement entered into by the sponsor corporation and the occupant, defines their relationship and details the terms of their agreement. Life lease agreements are governed by contract and common law and are not covered by Ontario’s Condominium Act, 1998 or the Residential Tenancies Act, 2006.
There are five basic types of Life Lease economic models. They are:
- Zero Balance
- Declining Balance
- Fixed value
- Index Based
- Market Value
Most life lease projects in Ontario follow the “market value” model where the purchaser pays the full “market value” for the right to occupy the life lease unit. When the occupancy ends, the resident or their estate, will sell the life lease interest for whatever the “market value” is at that time.
The Valuation Process
The sales comparison approach to value is the primary method of valuation used in establishing current value assessment for life lease properties. This approach estimates the value of a life lease project based on the sales of similar units or suite types within a complex.
In order of preference, the following categories of sales sources are to be used:
- sales from the subject life lease development
- sales from a comparable condominium complex
In order to compile a sales inventory for each development, MPAC sends sales questionnaires, requesting sales information for all units or suite types that have sold within the development within a specific timeframe.
MPAC analyzes the completed sales questionnaires and develops median rates per square foot by unit or suite type. These median rates per square foot are applied to both the sold and unsold unit types within the complex.
The total value of all units in the complex or development receives a 10 per cent downward value adjustment producing a current value assessment for the property. This adjustment is required in order to offset the non-realty or bundle of services, which maybe offered in the sale agreement, these are not generally accepted to be part of the realty component.
In developments, where no sales information exists, sales from a comparable project or a comparable condominium complex are used to develop the applicable rates per square foot. Adjustments may be necessary to reflect differences in amenities, location and other factors proven to affect the value of the property.
On the assessment roll, the life lease development is described under one roll number with the sponsor corporation shown as the owner. The individual life lease occupants are listed as tenants.
More information on the life lease Housing Sector is available on the Ministry of Municipal Affairs and Housing website.
Note: This procedure has been developed to provide the public with a general understanding of the assessment procedures for life lease properties. The applicable law prevails to the extent there is any conflict between the procedure and the relevant law.