First Nations Leasing: Buying and Selling Subleasehold Interests
This article is the fourth in my series on leasing First Nations land. My previous articles have reviewed the process for establishing new head leases and subleases on First Nations land. In this article, I will review the process for transferring interests in existing subleases.
In many cases, the interest purchased in a residential development is a subleasehold interest and that is the type of interest that I will discuss in this article. However, the process for assigning a head leasehold interest is very similar and generally the same steps will be involved.
1. Due Diligence Investigations
As with any other major purchase, a potential purchaser of a subleasehold interest will need to conduct investigations to ensure that the interest being purchased meets expectations. Some of these investigations are similar to those which would be carried out in the purchase of a residential strata or home. The purchaser will want to satisfy him- or her- self as to the results of a home inspection. The purchaser will also want to contact the Owners Association to ensure that the seller is up to date in paying all maintenance and other fees. The purchaser will want to have their lawyer review the Indian Land Registry for any unusual registrations. The purchaser will want to review the Owners Association bylaws, rules, budgets, meeting minutes and other documents.
In addition to these enquiries, the purchaser will also want their lawyer to review the head lease and sublease and provide advice about the circumstances in which the leasehold interest could be terminated for default and other issues related to security of tenure. Many leases are drafted to provide a high level of security to the sublessees if there is a problem with the head lease. However, there are some leases that are more problematic and a purchaser should ensure that s/he understands the risks before completing the purchase. Depending on the circumstances, other documents may need to be reviewed such as permits for roads providing access to the home.
2. The Purchase and Sale Contract
The Purchase and Sale Contract is the document which sets out the terms on which the purchaser will acquire the subleasehold interest, and covers many of the same issues as a contract for purchase and sale of a residence off reserve. It will set out the price, the timeline for completing the assignment, included and excluded items and other issues.
The process for closing an assignment of a subleasehold interest is more involved than a typical transfer of a residence and a different form of contract is used. A real estate agent or lawyer working with you on the purchase will be able to discuss with you the differences in process.
3. Obtaining Consent from INAC, if necessary
If the subleasehold interest is on lands which are managed by Indian and Northern Affairs Canada (“INAC”), it is likely that the assignment of sublease will require INAC’s consent before the assignment can take place. Subleases on reserve lands where the First Nation has the authority to manage its own lands, such as Westbank First Nation, may or may not have a similar requirement depending on the terms of the sublease. Older subleases created before the introduction of the land management powers will likely require Westbank First Nation’s consent for an assignment, whereas newer subleases are less likely to include such a requirement.
The Purchase and Sale Contract should include a clause that confirms that the transaction will not complete until all necessary consents have been obtained.
Obtaining INAC’s consent involves sending all transaction documents to INAC’s offices in Vancouver. INAC reviews the documents to ensure that its requirements have been met. This process can add a week or more to the timing for closing.
4. Registration of Assignment in the Indian Land Registry
The assignment of the subleasehold interest must be registered in the Indian Land Registry in Ottawa to be effective. In order to register the assignment, the parties must submit for registration the assignment document signed by the parties, and if necessary, the consent from INAC. The Indian Land Registry is not an instant registration process, and it can take two weeks or more to get documents registered. Therefore, it is important to ensure that the parties have signed up and exchanged transaction documents well in advance of the closing date to allow enough time for registration. In the case of an assignment of sublease of WFN lands, the process can be faster as the Westbank First Nation is able to register the assignment online in Ottawa.
The terms for closing the transaction will require that the purchaser have paid to their lawyers, in trust, the purchase price (other than any amounts being paid by mortgaging financing) before sending the documents for registration. This means that the purchaser must have their purchase monies (or down payment) available at least two weeks before the closing date. The purchase monies would not be released until registration has been confirmed.
If a purchaser is using mortgage financing, then the mortgage documentation would be submitted to the Indian Land Registry at the same time as the assignment of sublease.
5. Application for Membership in the Owners Association
If there is an Owners Association, the purchaser will also need to contact the Owners Association to register as a member.
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 assigning a sublease of First Nations land.