Aboriginal Land Development and Sale (Continued) #329

Nov 01, 2000

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By Gerry Neely
B.A. LL.B.

Column 328 referred to the landlord/tenant relationship resulting from the development of reserve lands. Once all levels of approval have been given, for example, to a residential project, a headlease is created between the federal Minister of Indian and Northern Affairs and a developer, as the tenant. This document provides the foundation for the subsequent sale of a right to possession of a residential unit, by way of a sublease, from the developer to the buyer.

The headlease is similar to an ordinary lease of commercial property. It sets out all terms and conditions intended to govern relationships which might exist for as long as 99 years. It also contains the formula for calculating the rent to be paid by the developer and, ultimately, by the buyer as a subtenant.

The formula may require prepayment of the rent for the whole term of the lease. This satisfies the Aboriginal group's need for revenue and, if the appropriate wording is contained in the headlease, meets the buyer's needs for security of possession and legal title, free from the developer's default under the headlease. However, that may be too much of a financial outlay for the developer to make.

Another headlease formula provides for rent reviews to be made every five or ten years, with the calculation of rent tied to the fair market value of the property at the date of the review. The publicity surrounding the Musqueam band and its tenants has made it clear that in a long-term lease, this formula creates uncertainty. It can lead to rent increases in excess of a subtenant's ability to pay, and default which ends in the loss of the right to possession. A variation of this formula is to tie rent reviews to the current Consumer Price Index (CPI).

Another formula for a phased development, which appears to meet the Aboriginals' need for revenue and buyers' security of tenure, and reduces the developer's initial cash outlay, has also found favour with the Canada Mortgage and Housing Corporation (CMHC). It requires an initial prepayment of rent by the developer toward the total rent payable under the headlease. As each unit is sold, the balance of rent is paid to the band.

There is always a possibility in a phased development that a developer who successfully completed one phase may default under the headlease during a future phase. This formula insulates the buyers in an earlier phase from the subsequent default, by providing that the prepaid lands are to be assigned to the homeowner's association of the completed phase. Each buyer automatically becomes a member of the association.

Since Aboriginal groups have the power to tax developed property, an important term of the headlease is the formula for calculating annual property taxes. To be competitive with adjoining non-reserve lands, the methods of determining mill rates, assessments and allowing for homeowners grants should result in a tax comparable to similar property in the adjoining regional district or municipality.

As a point of clarification, column 328 stated that provincial laws "such as the Strata Property Act and the Real Estate Act may not apply to reserve lands." Part 2 of the Real Estate Act does not apply to lands reserved for an Aboriginal group, an area of exclusive federal jurisdiction.

The position of the Superintendent of Real Estate is that Part 1 of the Act applies, presumably because it is a law of general application, similar to traffic laws, which are not directed at Aboriginals, but apply to everyone.

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