It is very important that the sponsor of a life lease project have stability and a good reputation in the community since the only security that the Tenant has to recover the prepaid rent is the promise of the sponsoring Landlord. The sponsors are gener ally church or service organizations operating on a not for profit basis. The Life Lease has certain tax advantages. If a new condominium were purchased instead of a Life Lease, the purchaser would be responsible to pay G.S.T. and Land Transfer Tax amounting to several thousand dollars. These are not payable by a Tenant.
Interest income is taxable.
By prepaying rent under a Life Lease, in effect the capital is going to the Landlord to build the rental complex rather than the bank to earn interest. There is no income tax payable but the Tenant achieves the result of having the total rent paid. If this was the case, then Section 82 of the Act would be offended since this prohibits security deposits equivalent to more than one month's rent. Also, interest is payable by the Landlord on security deposits. The Land Transfer Tax Act provides that leases of 50 or more years duration must be valued and land transfer tax paid thereon.