“Our Place” on the Lake – Inter-Generational Issues with Secondary Residences

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For many Kelowna visitors, our lakes, mountains and sunshine are a place to unwind with their friends and family at secondary vacation homes. As these properties are now starting to get passed on to the second (or third) generations,  many interesting legal issues are arising including:

  1. Income Taxes (capital gains) payable on the death of the Parents on Title;
  2. Income Taxes payable due to placement of kids as Joint Tenants with Parents (to avoid #1)!;
  3. “Sharing” issues between family members on things like upkeep costs and usage times;
  4. Liability issues in the event of a judgment against or divorce of one the owners (where property is shared);

Some Potential Solutions Include:

  1. Legal Ownership Structuring – Does there need to be a “Co-Ownership” agreement setting out the use and enjoyment of the property between multiple families? For larger or more complex family holdings, has a Family Holding Company or Trust been considered (Divorce/ Liability Protection)?
  2. Tax Planning – Capital gains will be payable upon transfer to children (whether as joint tenancy or upon death), has this tax been accounted for (life insurance may assist)? Is a principal residence exemption/ election available (or part thereof), especially if the primary home is not expected to appreciate?
  3. Securing Family Loans – Where a property (or portion thereof) is to be transferred to kids without immediate payment, parents should ensure that a promissory note/ mortgage evidence the loan (important in case of a future marital breakup).

Need help with a family vacation residence?

Call Kelowna Real Estate Lawyer Peter Borszcz.

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WFN – WEST HARBOUR LEASE FAQ

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West Harbour is a residential community and marina located immediately across Lake Okanagan from Kelowna, BC and developed by Troika Developments.

  1. What is the term?  Unless earlier terminated, the sublease expires June 5, 2107. Upon termination of the lease, your leasehold interest will expire and you must remove all belongings and leave the premises in good condition. A lease may be terminated prior to the end of the term in the event of an uncured default of either the sublease of the head-lease.
  2. Is the lease entirely prepaid?  YES – In addition, there are additional components which you are responsible for paying on a monthly ongoing basis being: Additional Rent and Home Owners Association dues, which will include common costs for property taxes, utilities, common area maintenance, common area insurance, and common area utilities.
  3. Other financial obligations under the lease? The rent is pre-paid however, as with other strata-type properties, there are additional components which you are responsible for paying on a monthly ongoing basis being such items as: Property Taxes and Utilities are payable to the WFN and Home Owners Association dues are payable (similar to strata fees) which will include common costs for property taxes, utilities, common area maintenance, common area insurance, and common area utilities
  4. Does the lease allow the owner to assign (sell) to a third party? YES – but, prior to assignment (sale) to any third party a certificate of good standing will have to be obtained. The Assignment must be registered with WFN. Additionally, there is a non-assignable, non-transferable sublease for a boat slip which terminates upon assignment to a third party, a $500 assignment fee is payable by the Buyer.
  5. Does the lease permit the owner to obtain a mortgage from a bank? Yes – the lease will permit the mortgaging of the Tenant’s interest without consent of the Landlord. The lease also contains those provisions which are required by the CMHC to provide insurance to lenders.
  6. Does the lease restrict the use of the property? Yes- Your use of your property is restricted to residential uses and home-based business uses which are subordinate to your residential use and carried on indoors.
  7. Are there unique insurance requirements? Yes – the Tenant must obtain a Personal Liability Insurance policy in the name of both the Tenant and the Sublandlord (West Harbour Holdings Ltd.)  in the amount of $2,000,000 and maintain “All Risks” Property Insurance upon improvements of Subleased Premises to their full insurable value.
  8. Are there provisions for a homeowners association? Similar to a Strata, The Home Owners Association or Sub-landlord may create bylaws and rules and fines may be imposed if you breach those bylaws or rules

By Kelowna Real Estate Lawyer Peter Borszcz.

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Why Kelowna Real Estate?

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I grew up here, so admittedly I have always has a little bit of a bias toward this valley. But, I recently had lunch with one of my clients who has an Alberta based business and a vacation home in Kelowna. Given the recent changes in our economic environment, a relatively weak US housing market, and a strong Canadian Dollar, he asked how come people continue to look to buy second homes in the Kelowna area?

In my opinion, the attraction of the area is:

  1. Ease of Access– Kelowna is a one day drive (or less) from Calgary, Edmonton, Vancouver and the oil and gas fields.  The direct flight is even faster.
  2. No Health Care Issues – As someone who has had to spend a night in a foreign hospital, I can say there is a lot of value in having a health care system you understand close by.
  3. No Taxation Issues – CRA treats property across provincial boundaries exactly the same, no special filings are required.
  4. No Residency or Visa Issues – Spending a large amount of time in a foreign jurisdiction requires permission of that foreign government (a visa).
  5. A Real Four Season Lifestyle – World Class Skiing, Golfing, Beaches, Wine all in one place. If you are bored in Kelowna, I guarantee next week will be different.
  6. Good Real Estate Value – the average home price in Kelowna is lower than the average home price in Edmonton, Calgary, and Vancouver.

Those are the good things, but I also think there are many areas where Kelowna can improve, especially in the area of business development. The city needs to constantly be looking to attract businesses to the valley. Our elected officials (provincial and municipal) need to look at initiatives to: a) reduce administrative barriers for business, b) facilitate infrastructure investments that help business grow, and c) connect quality of life with quality careers.

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Written by Kelowna Real Estate Lawyer Peter Borszcz.

WFN – ELKRIDGE LEASE FAQ

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Elkridge is a mixed townhome and single family home community located on Elk Road near the Two Eagles Golf Course in Westbank, British Columbia

  1. What is the term?  Unless earlier terminated, the sublease expires: January 2, 2109. At the end of the term, your leasehold interest will expire and you must leave the premises in good condition.
  2. What type of Lease is it? Upon the sale of the last unit in the development and at the discretion of the Developer, Elkridge uses a “Lessee Corp”  as Sublandlord model where the Owner may be issued a share Homeowners Association which is the tenant of the Headlease (note this has yet to occur).
  3. Is the lease entirely prepaid?  YES – In addition, there are additional components which you are responsible for paying on a monthly ongoing basis being: Additional Rent and Home Owners Association dues, which will include common costs for property taxes, utilities, common area maintenance, common area insurance, and common area utilities.
  4. Other financial obligations under the lease? The rent is pre-paid however, as with other strata-type properties, there are additional components which you are responsible for paying on a monthly ongoing basis being such items as: Property Taxes and Utilities are payable to the WFN and Home Owners Association dues are payable (similar to strata fees, and include a 15% administration fee) which will include common costs for property taxes, utilities, common area maintenance, common area insurance, and common area utilities
  5. Does the lease allow the owner to assign (sell) to a third party? YES – but, prior to assignment (sale) to any third party a certificate of good standing will have to be obtained and a transfer fee will be payable. The Assignment must be registered with WFN.
  6. Does the lease permit the owner to obtain a mortgage from a bank? Yes – the lease will permit the mortgaging of the Tenant’s interest without consent of the Landlord. The lease also contains those provisions which are required by the CMHC to provide insurance to lenders.
  7. Does the lease restrict the use of the property?  YES – Your use of your property is restricted to residential uses  and home based businesses only.
  8. Are there unique insurance requirements? YES – You are required to insure your premises according to the terms of the Sublease.
  9. Are there provisions for a homeowners association? Similar to a Strata, The Home Owners Association or Sub-landlord may create bylaws and rules and fines may be imposed if you breach those bylaws or rules

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