CONTRIBUTION · 27th February 2012
John A. Doolan-Gillian Piggott
What are the different types of First Nations land in the Province? What kinds of interests can a third party obtain and can those interests be mortgaged? How do I obtain property information and are there assurances as to title?
Different Types of First Nations Land and Obtaining Leasehold Interests
Traditional Reserve Land
Under the Indian Act (Canada) (Indian Act), reserve land is held by the federal Crown (Canada) on behalf of First Nations (defined as "bands" in the Indian Act). There are two types of reserve land:
general reserve land, which is held by Canada on behalf of a First Nation community as a whole and administered by the elected First Nation Council on behalf of the membership, subject to the requirements of the Indian Act; and
"locatee land," which has been allotted to one or more individual First Nation members (Locatees).
Leasehold Interests in Reserve Land
Generally speaking, the greatest interest that a third party can obtain in reserve land is a lease. For general reserve land, in order for a lease to be granted, the First Nation membership must "designate" the land for leasing by a referendum vote carried out in accordance with the Indian Act. Applicable policy of the Department of Aboriginal Affairs and Northern Development (Department) limits the lease term to 99 years. Prior to the granting of the lease, the tenant must obtain both an appraisal, demonstrating that the lease will provide for payment of "fair market rent," and an environmental assessment under the Canadian Environmental Assessment Act. The lease is negotiated with the First Nation and the Department and granted by Canada on behalf of the First Nation.
For Locatee land, Canada will grant a lease at the request of the Locatee. The lease process is administered by the Department, which will want to ensure that the Locatee has obtained independent legal advice and that the First Nation supports the lease, as evidenced by a resolution of the First Nation Council. Department policy limits the lease term to 49 years, unless a greater term (up to 99 years) is approved by the First Nation community at a general members' meeting. Again, an appraisal and an environmental assessment are required for leases of Locatee land.
Assignments, Mortgages and Subleases
Once a lease has been granted, the tenant may assign the lease with the consent of the Minister of Aboriginal Affairs and Northern Development (Minister). In some cases, First Nation Council consent is also required. Canada often will agree, in the lease form, that the Minister's consent will not be unreasonably withheld but, for designated land, the Minister's consent is required under section 54 of the Indian Act and cannot be waived. Most developers and lenders do not object to the consent requirement, particularly where Canada has agreed that the Minister will act reasonably in determining whether to consent.
A tenant may mortgage its leasehold interest to obtain financing. There is no statutory requirement for the Minister's consent to a mortgage, but many First Nation leases require consent of the Minister and/or the First Nation. In any event, lenders often want the Minister to enter into a mortgage consent agreement by which the Minister agrees to give the lender notice of tenant defaults and an opportunity to cure, as well as providing other protections to enable the lender to keep the lease in full force and effect. Different lenders have different requirements, so it is often necessary to negotiate the mortgage consent agreement with Canada.
A tenant also may grant subleases, subject to any consent requirements set out in the lease. In cases where the lease provides for the consent of the Minister or the First Nation, those parties sometimes will agree that consent is not required if a sublease is granted in a pre-approved standard form that is included as a schedule to the lease.
Other Interests in Reserve Land
There are other lesser interests that can be granted in accordance with the Indian Act, the most common being a "Section 28(2) Permit" (Permit), which is a non-exclusive license to occupy a portion of reserve land. Neither First Nation membership approval nor a land "designation" is required for the issuance of a Permit.
A Permit might be appropriate for certain temporary purposes (e.g., carrying out on-site surveys or investigations) or where only a non-exclusive use is necessary (e.g., an easement for road access). Department policy does not support a Permit where the Department believes that a lease would be more suitable.
Permit holders typically do not seek mortgage financing on the strength of a Permit alone, because Permits are not interests in land and do not grant exclusive rights. Exceptions might include situations where a Permit in the nature of a utility right of way is obtained for a significant infrastructure or energy project where third party financing is required. In such situations, the parties will be required to demonstrate to Canada that the Permit should include terms that will support the financing, such as the right to assign the Permit with the Minister's consent, and the rights of lenders to receive notice of default and to have an opportunity to cure.
First Nations With Delegated Authority
Some First Nations, such as the Tk'emlúps (Kamloops) Indian Band, have been delegated the authority under the Indian Act to negotiate and sign leases on behalf of Canada without Department approval. The designation, appraisal and environmental assessment requirements still apply and lease terms still are limited to 99 years.
Land Controlled Under the First Nations Land Management Act
Several First Nations have assumed control of their reserve lands in accordance with the First Nations Land Management Act (Canada) (FNLMA). The FNLMA process involves the creation of a "Land Code" that is approved by Canada and the First Nation. FNLMA lands remain reserve lands under the Indian Act, but the First Nation is granted the right to administer the land and regulate use and development in accordance with its Land Code. Canada is not involved in the First Nation's leasing or development approval processes. The Land Code sets out the First Nation's government and community approval processes for the granting of leases and other interests in community land, and expressly permits the granting of interests by individual members who hold title to their own land.
Federal laws regarding environmental and other matters will apply, as will First Nation laws, with respect to matters such as development approvals, cultural and heritage matters and business licensing. The consent of the First Nation Council typically is required for assignments and mortgages of FNLMA leases.
Westbank First Nation
Westbank First Nation (WFN) originally adopted the FNLMA regime and later developed its own Constitution with Canada. The WFN regime is similar in many ways to the FNLMA regime in that both federal laws and WFN laws apply to WFN land and WFN administers and regulates use and development of its land. Of particular note is that, unless there is a specific consent requirement in a lease, a tenant can freely assign, sublet and grant mortgages without consent. The WFN regime, which includes a WFN land registry, has facilitated considerable third party development on WFN land.
Tsawwassen First Nation
Tsawwassen First Nation (TFN) recently entered into the first modern urban treaty in B.C. Under the treaty (which became effective on April 3, 2009), both federal and provincial laws apply to TFN land and TFN itself has broad law-making powers, including the authority to pass laws in areas such as self-government, land management, environmental management and cultural and heritage matters. TFN's lands are registered under the Land Title Act (British Columbia) and TFN has passed a number of laws, including the TFN Land Act (which provides for the granting of interests in TFN land) and the Land Use Planning and Development Act (which provides for zoning regulation and subdivision and development approval processes). The TFN Land Act provides that only the TFN government or TFN members can own TFN lands in fee simple and that a third party can obtain no greater interest than a lease with a term of 99 years.
The Sechelt Indian Band has broad self-governing legislation and has registered its lands in the B.C. land title system. The Nisga'a Nation adopted a treaty which came into effect on May 11, 2000 under which fee simple ownership of "Nisga'a Lands" was granted to the Nisga'a Nation. The Nisga'a Nation has registered some of its land in the B.C. land title system and has also recently launched its own land registry system for a portion of its lands, but online searches and registration are not yet possible in this system.
First Nation Land Registry Systems
Title to most reserve land is registered under the federal Indian Land Registry system (ILRS). The ILRS provides for the recording of reserve land interests and the filing of plans and encumbrances, but, unlike the B.C. land registration system, there is no assurance as to title to land or interests in land, no requirement to register interests in land, and no assurance as to priority of interests. Registrations are made through the federal IL offices. Some First Nations will attend to registrations for tenants, subtenants, assignees and lenders. The ILRS can be searched online, but there is no online registration system at this time. There are similar systems for WFN and FNLMA First Nations that permit online searches but do not provide any assurance as to title. Given the lack of assurance as to title, most tenants, lenders and other interested parties will want to carry out considerable due diligence as to title matters and property boundaries. In many cases, it is advisable to obtain title insurance.
As noted above, TFN, the Sechelt Indian Band and the Nisga'a Nation all have some or all of their land registered in the B.C. land title system. This provides holders of leases, subleases, mortgages and other interests with assurances as to title, priority of registration and a statutory assurance fund, thereby facilitating investment without the title work required for First Nation land registered under the ILRS, WFN and FNLMA systems.
Indian Act Challenges
Section 28(1) of the Indian Act presents a challenge to the leasing and development of reserve land. It provides that a lease, contract or agreement whereby a First Nation or member purports to grant the right to occupy or use reserve land to a non-member, is void unless it is issued in accordance with the Indian Act. Therefore, it is not possible to "tie up" reserve land under a conditional lease or contract pending the completion of due diligence on the land or project by the non-member. There is no binding interest in land until the lease or other instrument has been issued in accordance with the Indian Act.
In most cases, we recommend that before proceeding with an appraisal or environmental assessment or preparation of a lease, a potential tenant or developer should negotiate a term sheet or letter of intent with the First Nation or Locatee, setting out the main business terms of the transaction. The agreement on the business terms will guide the formal documentation and ensure that the parties have reached a deal in principle, before incurring the expense of an appraisal and environmental assessment and going through lease negotiations.
Other Due Diligence
Before committing to a transaction on First Nation land, an interested party will want to carry out due diligence on non-title matters such as the following:
Access – What is the status of legal access to the land? Are access agreements required?
Services – What is the status of water, sewer and other necessary services? In many cases, some services are provided by adjacent municipalities.
Property Taxation – To whom are property taxes payable? Many First Nations have their own property taxation laws, with oversight by the First Nations Tax Commission.
Development Approval Processes – What is the applicable development approval process? Is it a strictly a federal process administered by the Minister and Public Works Canada or does the First Nation have its own process?
Cultural / Heritage Matters – Are there any known cultural/heritage issues regarding the land? Does the First Nation have any applicable cultural/heritage processes?
First Nation Bylaws – Does the First Nation have any zoning or other bylaws that might impact the development or use of the land?
Although there are a number of different First Nation land and title regimes, all of which differ from what most developers are used to, there are many successful projects on First Nation land. First Nations often control large tracts of developable land in regions where supply may otherwise be low, and developers and lenders who understand the applicable rules and issues often will be able to find good investment opportunities that may be overlooked by their competitors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.