September 2014

UBC Leasehold FAQ

Al Poettcker, President and CEO of UBC Properties Trust, helps us understand the difference between fact and fiction, and why a UBC leasehold home makes solid economic, social and environmental sense.

Q: Many people aren't aware provincial law prohibits UBC from selling freehold properties, but what exactly is someone buying when they purchase a leasehold property? Is it really a tangible asset?
A: Absolutely. Leasehold properties are registered at the Land Titles Registry just like any other home. You can buy them, sell them, even will them to someone. So you have all the same rights as a freehold property owner for the length of the lease - which at UBC is 99 years.

Q: How do prices compare to a conventional home purchase?
A: Like freehold, prices are driven by what the market dictates. At UBC, prices are similar to any other condominium on the Westside. And, of course, homeowners will still pay City of Vancouver property taxes and strata maintenance fees. The main difference is that at UBC you're buying into a 'complete community'. When a developer purchases the ground lease in order to undertake a development, part of the proceeds is used for streets, infrastructure, and amenities like parks and community centres. A significant benefit is that homeowners will not be dependent upon any government for these amenities and infrastructure. In addition, a portion of property taxes are automatically set aside and administered by the University Neighbourhoods Association to provide reserves for the inevitable replacement and upgrading of this infrastructure in the future.

Q: But what if a developer doesn't complete their building?
A: We've negotiated more than 50 leases with developers, and every one of these developments has either been built or is under construction. In the unlikely event of a problem, however, homeowners would have the same rights as they would at any freehold development.

Q: It's tough to discuss leasehold without addressing the widely publicized Musqueam lands in south Vancouver several years ago where people were forced to sell their leasehold homes at devastating losses. Could this happen again at UBC?
A: UBC is quite different. Leases here are fully prepaid by the developer, and there are no rent reviews during the term of the lease. Wherever you have rent reviews during the course of a lease, there will be uncertainty - and risk - both for the lessor and the lessee.

The Musqueum leases are on reserve land and were prepared by the federal government. They did not have pre-payment options and were subject to a rent review after 30 years. The original lease rates were so nominal, the potential affect of future rent reviews was probably not fully reflected in the resale prices. The problem came in year 30 when lease rates were allowed to be set to market value - meaning in some cases rents suddenly increased to $10,000 or more per annum.

Another example is False Creek, where some leases have a 60 year term with a rent review in the 30th. While that rent review period has passed, the issue now facing owners or potential buyers is the diminishing amount of time that remains on the lease. That affects things like what kind of renovations you might choose to do - or not.

In contrast, UBC leases are for a 99-year term, are prepaid in full by the developer, and have, on average, over 90 years left. So as a homeowner, you have complete certainty there will be no further lease payments for the balance of the term.

Q: Pure math indicates most UBC lease won't expire until well into the first decade of the 22nd Century. But what does happen at the end of 99 years?
A: At the end of the lease, the university can d o one of two things - negotiate an extension of the lease or pay the leaseholder fair market value for improvements to the property. The key point, though, is that over the next eight or nine decades, the number of people who want to live and work on campus will continue increasing. The university has a vested interest to ensure people are making a sound investment when they buy a home here and to do everything possible to retain this area as a vibrant, dynamic place to live.

Excerpt from the Metro Vancouver New Condo Guide, September 5-19, 2014.