First Nations Leasing: Overview of Documents for a Residential Development on First Nations Lands
This is the third in my series of articles on First Nations leasing. In my first article, I discussed Buckshee Leases and some of the risks associated with unregistered leases of first nations lands. In my second article, I reviewed Indian and Northern Affairs Canada’s (“INAC”) process for reviewing and approving registered leases. I have also prepared an organizational diagram which illustrates the leasing structure for residential development involving INAC.
In this article, I will provide an overview of the types of documents which are used in leasing First Nations Lands for a residential development.
1. Head Lease
The Head Lease is the master document governing use of the land and sets out the obligations of the developer. Where the development is on Westbank First Nation lands, the head lease is between the developer and Westbank First Nation for community lands or between the developer and the locatee for locatee lands. Where the development is on reserve land other than Westbank First Nation land, the head lease is between the developer and “Her Majesty the Queen in Right of Canada, as represented by the Minister of Indian and Northern Affairs”. The rent under a Head Lease is usually lump sum and prepaid. The term is typically 99 years, although in some circumstances the parties may choose to use a 49 year term. A lease of 49 years does not require Band approval.
A key issue in preparing and negotiating a Head Lease is ensuring security for the subtenants and protecting the subleases if the developer defaults in its obligations. This will ensure that the subleases are marketable and eligible for CMHC insured financing.
The individual lots or units which are sold to the homeowners are created by subleases. The subleases govern the legal relationship between the developer, as sublandlord, and the homeowners, as subtenant. Subleases are usually lump sum and prepaid. The number of years of the term of the subleases would be the same as the term of the Head Lease, less one day. A couple of key issues in preparing subleases are to ensure that the sublease qualifies for CMHC insured financing and to ensure that the homeowners pay a share of the costs of upkeep of the common property in the development.
3. Owners Association Incorporation Documents
At some point after the development is fully built out and sold, the developer may want to step back from managing the development and allow the subtenants to take over. There are a few strategies for this, and one that is frequently used is to have the subtenants become members of an “Owners Association” which takes on the role of managing the common property. The Owners Association would operate in a similar fashion to a Strata Corporation, and would be formally incorporated as a not-for-profit society under the Society Act.
The Owners Association would have bylaws setting out the rules for how meetings are held, the procedures for electing directors and other similar matters. All of the subtenants would automatically become members of the Owners Association, and their membership would end when they sold their sublease to another person (who would in turn become a member). There are unique issues for an Owners Association and it is important to use incorporation documents that have been customized for use with Owners Associations and their unique concerns.
4. Other Agreements
Various other documents and agreements may be required, depending on the structure of the development, the parties involved and other factors. These documents could include: information statements regarding the development, purchase and sale agreements for pre-sales, assignments of sublease, non-disturbance agreements and consents to mortgage, assignment or sublease. Information statements are sometimes prepared when marketing a development and may be required for out-of-province marketing. Purchase and sale agreements set out the terms and conditions for the purchase of a sublease interest, and will include the sublease price, the timeline for possession and the process for registration of the sublease in the Indian Lands Registry. Non-Disturbance Agreements are used to provide assurances to the bank that it will be able to enforce its security if the subtenant defaults under its loan.
In my next article, I will discuss the process for buying and selling subleases and registering them in the Indian Land Registry.
Andrea East is a business lawyer at Pushor Mitchell LLP practicing in the area of First Nations Law. You can reach Andrea at 250-869-1245 if you would like help in preparing or negotiating a lease of First Nations land.