How did it get this bad?
Under the life lease model, residents paid large lump sums upfront for the right to occupy a unit, expecting to be refunded when they moved out, or passed away, minus a refurbishment fee.
However, a repayment queue begins if more than six per cent of residents terminate their lease at once. As of late 2024, nearly 50 former Bedford Village residents alone were in the queue, with over $17 million owed. Across all Christenson properties, that total is expected to surpass $100 million by this year, according the CBC.
Rapidly growing queues have left seniors waiting two to three years for their money, and new provincial regulations are complicating the company’s ability to pay.
Christenson Group president Greg Christenson warned that recent rules mandating a 9% annual interest on unpaid entrance fees could make refinancing and repayments impossible.
“The resulting strain on cash flow will also lead to insolvency for each property with life lease loans and stop refinancing plans,” Christenson wrote in a letter to residents obtained by CBC.
He told CBC that the interest rate environment, the Alberta real estate market and the demand for seniors’ housing continues to improve.
“So the question isn’t the ability to repay — the question is how long will it take. And we know that people are very stressed, particularly the estates, or the adult children of the seniors who lived in our buildings.”
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The Alberta government now requires housing operators to pay accrued interest if entrance fees aren’t returned within six months. Although these rules are not retroactive, they apply to newer terminations, adding another layer of financial pressure, according to Alberta government regulations.
Government officials have stated they expect Christenson Group to meet its obligations.
"We expect life lease operators to structure their operations in a way that allows them to meet all their contractual and regulatory obligations, including repaying entrance fees to all life leaseholders and paying interest to life leaseholders where there have been unexpected delays in returning entrance fees,” Brandon Aboultaif, a spokesperson for the Alberta government, told CBC.
How developers and residents can avoid this trap
To avoid such distressing scenarios, both property developers and prospective residents should consider the following measures:
- Enhanced financial oversight: Developers must implement rigorous financial management practices to ensure long-term viability. Regular audits and transparent financial reporting can help detect and address issues before they escalate.
In Canada, the Office of the Superintendent of Financial Institutions (OSFI) emphasizes the importance of robust risk management practices for real estate secured lending, highlighting the need for sound financial oversight to maintain stability in the housing market.
- Legal protections for residents: Contracts should include clear terms that protect residents' investments. This may involve setting up escrow accounts or trust funds specifically designated for resident repayments, ensuring that these funds are not commingled with the developer's operational finances.
In Ontario, the Retirement Homes Act, 2010 mandates that retirement homes have written tenancy agreements detailing the care services, meals and accommodation provided, along with their associated costs, thereby safeguarding residents' rights and investments.
- Comprehensive due diligence: Prospective residents should thoroughly investigate a developer's financial health and track record before entering into agreements.
This includes reviewing financial statements, seeking references from current or past residents and consulting with financial advisors. Understanding the terms of residency agreements, including services provided, fees and policies on care level changes, is crucial for residents to prevent potential abuses or neglect.
- Regulatory compliance and advocacy: Engaging with industry advocates and adhering to regulatory guidelines can provide additional layers of protection.
In Canada, real estate brokers, sales representatives, and developers are required to implement compliance programs and verify the identity of clients to prevent financial mismanagement and fraud, as outlined by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Sources
1. CBC: More than 200 Albertans owed hundreds of thousands of dollars for life lease repayment (Feb 12, 2025)
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