Barry M. PorrelliBarrister & Solicitor

First Nation Land Development

DEVELOPING RESERVE LANDS

1. INTRODUCTION

2. WESTBANK FIRST NATION

3. DISCUSSION OF RESERVE LAND HOLDINGS

4. LEASING PROCESS FOR RESERVE LANDS

5. STRUCTURING THE LEASE

6. STRUCTURING THE LESSEE

7. CONCLUSION

1. INTRODUCTION

• Reserve land development represents bulk of my practice

• Projects I have been involved in include:

• Royal Heights, a 33 lot subdivision in West Kelowna Estates in the early 90’s

• numerous manufactured home parks

•More recently:• Aria, 175 unit condo golf course development on Vintage Golf Course in Westbank• Home Depot/Canadian Tire development in Westbank(locatee)• Anthem’s Superstore development in Westbank• Crowntown, 100 stick built home development • Sage Creek, 270 unit modular home development• Vintage View, a commercial/hotel development• big box store development on the Adams Lake Band• Copper Sky, 536 unit condo development• Tesoro Arca, 85 unit townhouse development• Ferry Landing, large resort development on Okanagan Lake• West Harbour Kelowna, proposed 1500 unit lakefront development (for locatee)• Many, many other developments on Westbank First Nation and other reserves in BC

2. WESTBANK FIRST NATION

• Development on this Reserve is exploding• Currently some 35 pending development applications

reportedly worth over $1 billion• The recent explosion of growth started with the Hub Centre

big box development with Home Depot as the anchor• First Canadian Title insured that Headlease which we

understand was a first in Canada• Followed by other large multinational and national operators

such as Walmart, Canadian Tire, Superstore, London Drugs, etc.

• And many, many other residential, condo, commercial and resort-style developments

Westbank First Nation

• WFN is blessed in that it has:• sound, stable, progressive Self-Government with Chief

Robert Louie• a membership that, for the most part, favours

development• a large amount of urban, undeveloped prime land,

adjacent to or intersected by a highway, access to services, often highway or waterfront, or lakeview

• if wasn’t on reserve, much would have been in the ALR and incapable of development

• an Economic Development Commission (only Band in Canada with an EDC we are told)

Rempel Group’s Copper Sky Development

Anthem’s Governor’s Landing Development

3. RESERVE LAND “101”

• Reserve Lands are generally held in the name of Her Majesty The Queen (the “Crown”) for the benefit of the particular First Nation

• Generally there is no concept of “Fee Simple” and most Reserve lands are not registered in any Provincial Land Title system

• There are two types of interests in Reserve lands:

• Designated lands which are Band (community) lands not allotted to a specific member and designated for leasing purposes

• CP or Certificate of Possession lands being lands where individual Bandmembers have been granted rights of possession under the Indian Act

• CP lands are also known as “Locatee lands” because “location tickets” were issued to CP holders under an earlier version of the Indian Act (prior to 1951)

• so CP holders are referred as “locatees”

• The Indian Act being a very paternalistic piece of legislation prevents First Nations from freely dealing with their lands

• their CP can only be transferred to the Band or another Band Member

• Section 28 of the Indian Act says that any lease that permits anybody other than a Band Member to occupy or use a Reserve is otherwise generally void

• many leases out there known as “buckshee” Leases which are not registered or approved by the Department of Indian Affairs which are not enforceable

• Reserve lands are generally NOT registered in any provincial land title system - registered in the Indian Lands Registry in Ottawa :

• so the safe guards that the Provincial Land Title System provides are not generally available on Reserve

• to review title, the lawyer must conduct a historical search of all the transactions that have occurred on title since the date of issuance of the initial Designation or Certificate of Possession

•Provincial legislation often does not apply on Reserve:

•Disclosure Statements under the B.C. Real Estate Act are not required

•registration under New Home Warranty (B.C. Home Owner Protection Act) is not required

•the B.C . Strata Property Act generally does not apply

4. LEASING PROCESS ON RESERVE LANDS

• Process of gaining an interest in Reserve land quite a bit more complicated than freehold so legal fees usually higher

• But quite a distinction between the WFN and most other Bands in Canada because WFN has Self-Government

• Most of my dealings have been on CP (Certificate of Possession) lands (i.e. leases of individual Band members lands)

•Process similar for Designated lands (Band lands) but for Designated lands:

• they first have to be Designated first which can be more time consuming

• require Band vote

• Order-in-Council

• but some Bands (Kamloops, for example) have designated for lease large areas in advance of any specific development

• Leasing process usually begins with an Agreement to Lease or Memorandum prepared by a lawyer between the locatee and the developer which generally outlines the terms of the lease, the rent to be paid, any conditions to be met, closing date, etc.

A. Typical Leasing Procedure (Non-WFN Lands)

• An application is then made to the Department of Indian Affairs to lease the lands

• On most Reserves, if the lease is more than 49 years it requires a majority vote of the Band membership to approve it

• As part of the application process, the applicant submits an appraisal of the property, environmental assessment, technical drawings, surveys, etc.

• The applicant’s lawyer usually negotiates the form of lease with the Department of Indian Affairs

• The Band is consulted and the Band Council (hopefully) approves the lease by resolution

• Ultimately the lease is signed by the Developer, the Band Council, Canada and the locatee and submitted for registration in the Indian Lands Registry, Ottawa

• Whole process can take many, many months

B. WFN Leasing Process

• In 2005, Canada and the WFN signed a Self-Government Agreement

• Among other things, took land management and development away from INAC

• The Headlease is directly with the Locatee (or the Band if community lands), not Her Majesty The Queen

• No dealings whatsoever with the Department of Indian Affairs

• No appraisal required

• No band vote required (unless Community lands) regardless of the length of lease

• Free to tailor your own form of Headlease (far more commercially realistic)

• Very effective Lands Department: Regulations passed under their Constitution recognize priority of registered interests; allows for e-filing of documents

• Generally a much quicker, efficient, certain process

5. STRUCTURE OF LEASE

• For most reserves, the Headlease is between Her Majesty The Queen and the Developer

• INAC has some 55 forms of lease but we primarily use their Commercial and Residential formats - not very “tenant-friendly” - can be difficult to negotiate commercially realistic amendments

• On WFN, it’s between the locatee and the Developer and the parties are entirely free to negotiate their own form of lease

• Important points in the lease:

• Term: For residential developments in B.C. the 99 year lease has been become the gold standard if it can be achieved (for most bands this means a majority membership vote)

• Commercially , and for manufactured home parks, we often see leases of 49 years or less (often because a majority band membership cannot be obtained)

•Payment of rent: The rent PREPAID up front has again become the gold standard for Reserve development

•that is, all the rent owing to the Crown (or locatee) is paid up front so there can be no termination for failure to pay rent if it’s all paid up front

•Historically there are lots of Headleases (in manufactured home parks for example) where rent isn’t prepaid

•rents are a percentage of revenue and reviewed every 5 years

•this model is no longer very popular

•Most successful leases are fully prepaid at the outset or contain a mechanism to provide security to sublessees:

•an unprepaid Headlease with a trust fund set up to secure payment of rent under the Headlease

•or a series of Headleases for a phased development where each phase is prepaid

•Most residential leases include a “home owner association” provision which allows homeowners:

•to act like a strata corporation

•to cure any breach under the Headlease and assign the Headlease to the Homeowner Association in the event of a breach

•in the past we used a company but for all my recent developments I use a Society

6. STRUCTURE OF LESSEE

• A developer Lessee is often a single purpose company incorporated for the sole purpose of developing the Reserve lands

• Limited Partnerships have become very popular vehicles which can be used in certain circumstances to attempt to avoid the payment of GST on the sublease of residential lots or units on Reserve

• Generally GST is payable on sale of homes on reserve (but no B.C. property transfer tax typically)

•In order to achieve the GST exemption, the locatee or Band must participate in the Limited Partnership

•The tax lawyers like to see at least a 10% participation by the native in the Limited Partnership

•GST at this time takes the position that if an “Indian” is a member of partnership, then the partnership is “Indian” (based on Interpretation Bulletin)

•The goal then is to allow the sublease of lots or units free of GST as the partnership is then exempt

•This applies only with respect to GST, and is not without some risk of reassessment by CRA

•Requires involvement of a good tax lawyer

7. CONCLUSION

• Land Development on Reserve is exploding particularly in the Okanagan

• Some of the finest land left in Canada for development is on reserve

• If you take the time to inform yourself of the process, there are some incredible opportunities for Bands, Band members, and developers

Thank You

Barry M. Porrelli

Phone: 250.768.5152

porrelli@shaw.ca