Is Buying on First Nations Lease Land Wise?
Chilliwack has many great housing options particularly for retirees. Many seniors are drawn to rancher communities for the lifestyle and security they provide. However, as a city hemmed in by mountains, waterways and protected agricultural land, there isn’t a large amount of freehold land to build these large communities. Hence the emergence, just over 20 years ago, of leasehold developments on First Nations lands. There are at least 9 of these retirement projects
in Chilliwack at present and we are certain that we will see many more as the years progress.These properties are generally considerably less expense to purchase than the equivalent freehold home, many are gated, and they are often located close to desired amenities and some of the nicest settings in town on the valley floor.
So is it a smart choice for you? As with all of life’s major decisions it is important to be well informed. On this topic there has been much misinformation causing many people to believe that buying on lease land is not a good idea. So let’s clarify some facts about buying leasehold property and deal with some of the myths.
Leased lands are located on reserves which are owned by Her Majesty the Queen, in Right of Canada. Certain band members, called Locatees, had possession of these lands for their family’s use. To create a new development the Locatees request that the Federal Government enter into a lease, say 99 years, with the Developer on behalf of the Locatee. These band members suspend their right to use the land for the lease term in exchange for prepaid rent for the term of the lease. This is a direct contractual agreement between the Federal Government and the Developer only. This is what is described as the Headlease.
The Developer can now subdivide the lands and issue Subleases to those who wish to purchase a home in the development. The Sublease gives you the right to occupy and use the premises for the length of time set out in the sublease document. As long as you make your lease and common area maintenance payments you can live here just as you would in a similar freehold strata community, undisturbed. You can ‘resell’ your interest by Assigning the Sublease to a buyer.
Subleases come in two forms, pre-paid or pay-as-go. Pre-paid means just that, that there is a dollar value at the initial purchase to pre-pay the lease up front. However, in Chilliwack the majority of homes are pay-as-you go which means you make a lease payment each month. It is important to review how this lease payment is determined each year. Most of our lease increases are based on a formula around the Consumer Price Index (CPI).
Myth #1.My property can be taken away.
These are already reserve lands and are not involved in any land claims or land claim settlements. In the past there were a badly constructed lease agreements that caused some issues. Many of these conflicts arose because a Developer had failed to make payments for the Headlease. It is always important to review the Head and Sublease carefully preferably with a lawyer or notary well versed in First Nations leases to make sure that everything is in order.
Myth #2. If the First Nations is the tax authority they can increase my taxes to anything they want.
Just not true. In establishing the right for a Band Taxing Authority certain controls were put in place. They must use the same guidelines and methods of assessment that the B.C.Assessment Authority uses for freehold lands and the mil rate applied is approved by the Federal Government annually and is required to be consistent with mil rates charged in the surrounding area.
Myth #3 A Home on Lease Land is not a good investment.
While you can expect to pay less for a home on lease land, a big benefit to most people, we have noted over the roughly 24 years that Chilliwack has had this product that the values have followed the same cycle of appreciation as freehold properties in the city.
Myth #4 You Can’t Get a Mortgage on First Nations Land
It is true that not every financial institution will grant mortgages on lease land. However, there are banks and credit unions that have a very good programs for financing in these communities. Talk to your REALTOR or a mortgage broker to find out the best options.
We wholeheartedly believe buying on lease land can be a wise and secure decision. The long and short of it is, that like all real estate transactions, buying on lease land requires you to do your homework and engage a knowledgeable local REALTOR, lender and legal advisor.
-Kelly Lerigny & Anita Lloyd
RE/MAX Nyda Realty