A life lease in Michigan is a contract that gives you the right to occupy a specific residence, usually in a senior living or continuing care community, for the rest of your life in exchange for an upfront entrance fee and ongoing monthly charges. It is not the same as owning the property. The arrangement is governed primarily by the Continuing Care Community Disclosure Act, Act 448 of 2014, along with Michigan’s Statute of Frauds and Consumer Protection Act.1Michigan Legislature. MCL Act 448 of 2014 – Continuing Care Community Disclosure Act What you actually get, and what your estate gets back, comes down to the specific terms of your written agreement.
Life Lease Is Not the Same as a Life Estate
These two terms sound alike and often get confused, but they behave differently under Michigan law. A life estate is a recognized ownership interest in real property. A life lease is generally a contractual right to occupy a property during your lifetime.2Social Security Administration. POMS PS 01810.025 – Michigan
The distinction matters most for property taxes. Michigan’s principal residence exemption lowers the tax rate on your primary home, and the Department of Treasury has stated that a life lease holder is not treated as a partial owner for exemption purposes unless they owned the property before the life lease was created. A life estate holder is treated as a partial owner and does qualify.3Michigan Department of Treasury. Principal Residence Exemption Guidelines If you’re buying into a senior community through a life lease, you almost certainly will not qualify for the exemption. Confirm in writing exactly which type of interest the agreement gives you.
The Statute That Governs Life Lease Communities
The Continuing Care Community Disclosure Act regulates the offer and sale of life interests and long-term leases in Michigan retirement communities.1Michigan Legislature. MCL Act 448 of 2014 – Continuing Care Community Disclosure Act It covers independent living units, nursing homes, homes for the aged, adult foster care facilities, and similar residential care settings. It prohibits fraudulent practices in the sale of these interests and requires providers to disclose information about the community’s financial health, the services included, and the terms governing refunds and termination.
Ask for the disclosure statement in writing before you sign anything or hand over a deposit. Providers who fail to meet the Act’s requirements face penalties and civil sanctions, and the disclosures give you the raw material to judge whether the community is financially stable enough to keep its promises for the rest of your life.
Get It in Writing, and Know What Should Be In It
A Michigan life lease must be in writing. Two provisions of the Statute of Frauds require it. Any agreement that cannot be performed within one year must be in writing and signed by the party to be charged.4Michigan Legislature. MCL 566.132 – Agreements Required To Be in Writing And any conveyance of an interest in land other than a lease of one year or less must be in writing.5Michigan Legislature. Michigan Compiled Laws 566.106 – Statute of Frauds, Conveyance of Interest in Lands A verbal life lease is not enforceable.
At a minimum, a life lease should spell out:
- The full legal names of the holder and provider, and a detailed description of the unit.
- Confirmation that the lease runs for the holder’s lifetime, plus any conditions that could shorten it.
- The entrance fee amount, monthly maintenance charges, how and when fees can increase, and every refund provision.
- Which repairs the provider handles and which fall to you.
- What counts as a default, the cure period before eviction, and how you can voluntarily terminate.
- Whether the lease can ever be assigned or transferred.
If any of these terms are missing or vague, push back before signing. Once the entrance fee is paid, the contract is the only thing protecting your investment.
What Your Money Buys, and What Can Take It Back
Life lease communities generally charge an upfront entrance fee that secures the lifetime occupancy right, plus monthly charges covering maintenance, property taxes, insurance, and community services. Entrance fees vary widely by community, location, and unit size. Monthly fees commonly run several thousand dollars and tend to increase over time.
Refundability of the Entrance Fee
Entrance fees do not all work the same way. Some are fully refundable when you leave or pass away. Others are partially refundable on a declining schedule that shrinks each year you live there. Some are nonrefundable entirely. A “90% refundable” fee can still take many months to pay out and may be contingent on the unit being re-leased to a new resident.
Read the refund clause word by word and get specific answers on paper. What percentage is refundable? Does it decline over time, and on what schedule? Is the refund contingent on the unit being re-leased? How long does the provider have to pay? These questions determine what your estate can recover.
Monthly Fee Increases
Uncapped monthly fees are one of the biggest financial risks in a life lease. Your monthly costs can rise year after year. Some agreements tie increases to an inflation index. Others leave the provider broad discretion. Language allowing increases “as necessary to cover operating costs” gives the provider effectively unlimited pricing power. If the agreement does not cap annual increases or tie them to a specific benchmark, negotiate for that language or walk away.
Tax Treatment You Should Expect
Most life lease holders do not qualify for Michigan’s principal residence exemption, because the statute requires you to have owned the property before acquiring the life lease.3Michigan Department of Treasury. Principal Residence Exemption Guidelines Since most residents never owned the underlying property, they don’t meet that requirement. Property taxes are usually folded into your monthly fees, and you won’t be able to deduct them the way a homeowner would.
Refundable entrance fees can create additional tax complexity. If a large refundable deposit is held by the provider, the IRS may treat it as a below-market loan subject to imputed interest rules under Section 7872 of the Internal Revenue Code.6Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates A portion of a nonrefundable entrance fee may be deductible as a prepaid medical expense if the community provides health care services and allocates part of the fee to medical care. These rules are fact-specific. Have a tax professional look at your contract before you sign.
Your Rights If the Provider Falls Short
Once the lease is in place, the provider must keep the property habitable and safe, including structural maintenance, code compliance, and upkeep of common areas. You are responsible for paying monthly fees on time, keeping the unit in reasonable condition, and following community rules on things like alterations, noise, and pets. A provider cannot remove you because they want to repurpose the unit or sell the property. Any eviction has to follow the procedures in the agreement, and the provider bears the burden of proving a material breach.
When a provider misrepresents services, conceals financial trouble, or uses misleading sales tactics, Michigan’s Consumer Protection Act applies. It prohibits unfair, unconscionable, or deceptive practices in trade or commerce.7Michigan Legislature. MCL 445.903 – Unfair, Unconscionable, or Deceptive Methods, Acts, or Practices Individual claims can recover actual damages or $250, whichever is greater, plus reasonable attorney fees. For certain willful violations, damages rise to actual losses or $5,000, whichever is greater, and a court may award punitive damages.8Michigan Legislature. MCL 445.911 – Actions by Person The Michigan Attorney General’s Consumer Protection division also takes complaints and can investigate patterns of abuse across a community.9Department of Attorney General. Department of Attorney General
What Happens If the Provider Goes Bankrupt
This is the risk most marketing materials never mention. If the entity operating your community files for bankruptcy, your entrance fee becomes a claim against the estate, and you may recover only a fraction of what you paid.
Under the federal Bankruptcy Code, consumer deposit claims receive priority status, but only up to $3,800 per individual. For someone who paid a $200,000 entrance fee, that priority covers less than 2% of the loss. The remaining balance is treated as a general unsecured claim, which typically pays pennies on the dollar. The Bankruptcy Code does not currently include any special priority for continuing care entrance fees.
Before you sign, investigate the provider’s financial health. Request audited financial statements. Watch for warning signs: frequent management turnover, deferred maintenance, declining occupancy rates, and fee increases that consistently outpace inflation. If your agreement includes a refundable entrance fee, ask whether those funds are held separately from the provider’s operating accounts. Commingled funds are the first to disappear in an insolvency.
How a Life Lease Interacts With Medicaid
If you later need nursing home care, how Medicaid treats your life lease interest matters. For Medicaid eligibility purposes in 2026, the federal home equity limit for nursing home applicants is between $752,000 and $1,130,000, depending on the state. A life lease interest that qualifies as a home may fall under this exemption if you maintain an intent to return.
A large refundable entrance fee owed back to you can be treated as an available asset, which can disqualify you from Medicaid until it is spent down. The treatment depends on whether the fee is refundable, how much has been amortized, and how long you’ve lived in the community. Getting this wrong can delay or prevent coverage exactly when you need it. An elder law attorney who works with both life leases and Medicaid planning is worth the fee.
How a Life Lease Ends
A life lease ends when the holder dies. That is the defining feature. Several other events can also end it.
- You choose to move out. Most agreements let you terminate voluntarily and receive whatever refund the contract provides.
- You breach the agreement. Non-payment of monthly fees, repeated rule violations, or unauthorized alterations can all count as default. The provider usually must give written notice and a cure period before pursuing eviction.
- You need a higher level of care. Some agreements specifically address transferring to assisted living or a nursing facility and provide for a partial entrance fee refund.
A life lease is personal to you. You generally cannot transfer, assign, or bequeath it. When you die, the lease ends and the unit reverts to the provider. Your estate’s only financial interest is whatever refund the agreement provides. Some contracts allow limited transfers in narrow circumstances, such as relocation to long-term care, but even then the transfer usually needs the provider’s consent and may trigger a reduced refund. You are paying for the right to live in the unit, not for a property interest that appreciates and passes to heirs. What returns to your estate is set by the contract, not by the market.