As an entrepreneur, I have always found it useful to establish people's objections to progress in a discussion important. It is in fact a critical part of the sales process. If you view yourself as an advisor to a client then your role is to establish information gaps and build bridges for your clients. Any important leader will have knowledgeable advisors around them who are designed to provide specific information to that leader to assist them in decision making. In sales we do the same thing.

 

What I find in discussions with people on leased land is that there are only a few areas that are important to them to establish.

 

The most common question is in regards to the landlord. 

 

Am I renting from a First Nation band?

 

In some instances you may be. As I mentioned in the last article, that is not necessarily a bad thing. Locally, the First Nation projects have been tremendous examples of Landlord/Tenant relationships. The important aspect of the relationship are the terms of the lease and the head lease. These are documents that your REALTOR® will help you access and it is advisable to talk to a lawyer with some experience with First Nation leases to interpret the various conditions and terms for you.

 

In most instances of new development, there will likely be a more traditional development company that has signed the agreements with the Crown and is selling you a 99 year right to use (lease) the property. The development company may have various partners or shareholders and serves the purpose typically of planning, developing, financing, marketing and selling the project. These are the people you really should do some research on... 

 

What happens at the end of the lease?

 

The best thing to understand is that you no longer have the right to use your property, unless an extension to the lease is offered to you. We are starting to see that happen as leases come close to their expiry. The simplest way to look at it is that the Landlord has a few options, attach a value to the extension of your lease and give you the opportunity to renew, or redevelop the land into another project that is considered to be highest and best use at the time.

 

How much money do I get back at the end of the lease?

 

The short answer is none. You have no right to the land and you would find it very difficult to remove the chattels (the building) and develop any revenue. The real thought process comes back to the fact that if you are 30 years old today and you are worrying about a decision that will likely never happen when you are 129 years old. I say that because you are likely to sell the property well before that time.

 

Many developers are overcoming this objection by creating an investment fund for the project owners. The fund will usually be “seeded” by the developer at the beginning of the project and provide a non-aggressive investment plan that essentially creates a legacy fund for the end users. This in fact allows for a pool of money to be distributed to the owners at the point in time where the lease is potentially terminated...

 

Will my property appreciate in the market place?

 

That really depends on what the market is doing at the time. Leases will generally follow the peaks and troughs of the traditional real estate market although the overall values of the leased property will be less than a freehold title because the value of the right to use the land is seen to diminish over time in a fair market value context.

 

Next week I will introduce the very positive benefits of First Nation leased land development.