Leasing on designated reserve land

Lease activities

1.6 A lease can be classified by the type of activity it covers. The following list outlines general authorized activities based on lease type:

Lease precedents (templates)

1.7 Lease precedents (also known as templates) provide the basis for all leases and include necessary policy and legal requirements to ensure consistency and accuracy when negotiating terms. The precedents simplify drafting, allow for a streamlined process, and can be tailored to meet the needs of specific projects. Precedents are available by contacting the department terres-lands@sac-isc.gc.ca.

1.8 First Nations, as represented by their Band Council, have the option of being a contracting party to the lease, as reflected in the lease precedents. The department and the Band Council will continue to be in a fiduciary relationship with respect to the lease and have certain fiduciary duties and remedies, respectively.

1.9 Leases contain provisions dealing with all aspects of the relationship between the lessor (the department) and the lessee (the proponent) to ensure they understand their obligations to each other. The lessor, lessee, and the Band Council must negotiate elements including consideration (rent), rent reviews, the proposed use of land, and duration of the lease as reflected in the designation document and the community's land use plan, if applicable. It is the responsibility of the department to ensure all non-negotiable terms such as all applicable laws, regulations and standards are included when preparing a lease.

1.10 If applicable provincial fire regulation require regular fire inspections, based on the type of leasing activities, then the lease must include a clause requiring regular inspections of the premises with a copy of the inspection report to be provided to the department (lessor) and the Band Council.

Environment

2.1 Environmental processes such as site assessments, reviews, and audits may be required. Departmental environment officers must be included early on in planning stages and before the issuance of a lands instrument to ensure appropriate environmental considerations have been taken.

Independent legal advice

2.2 The department recommends Band Councils seek independent legal advice in all circumstances. In some instances, this will be a requirement. In cases where a Band Council does not wish to obtain independent legal advice, a Band Council Resolution stating that they have chosen not to obtain independent legal advice will be required.

Credit investigations and corporate standing

2.3 The proposed lessee, at their own expense, must obtain and provide the department with a credit check to confirm they have sufficient means to pay the agreed upon rent. Credit checks are not required in situations where the lessee will be a Band-owned corporation paying nominal or reduced rent.

2.4 Where the lessee is a corporation, the lessee must, at its own expense, provide proof of its corporate standing and the names of its current signing officers.

Land description (survey)

2.5 The lease must contain a legal land description which meets the requirements contained in the Interdepartmental Agreement between the department and Natural Resources Canada.

Encumbrance or charge check

2.6 Before any lease can be issued, an encumbrance or charge check must be conducted to identify all surface and subsurface encumbrances or charges, locatee interests or rights, and Indian Oil and Gas Canada interests or rights registered in the Indian Lands Registry System. After an encumbrance or charge check has been completed, a land status report summarizing these third party interests or rights must be generated and provided to the Band Council. It is the Band Council's responsibility to review the land status report and take appropriate steps to ensure the removal of any conflicting encumbrances or charges.

2.7 A lease will be subordinate to prior interests or rights such as distribution and access permits for utilities, easements, permits, or leases or permits for mineral or oil and gas extraction.

Access to the premises and landlocked parcels

2.8 Access must be provided for any lands that become landlocked as a result of the lease.

2.9 The lessee is solely responsible for securing and maintaining legal access (by public or private road, water, air or otherwise) to and from the premises.

Service agreements

2.10 The lessee is solely responsible for securing service agreements with the Band Council or the relevant municipality, district, or province/territory with the approval of the Band Council for services such as water, sewer, solid waste disposal, fire, and road or highway access.

Authorized use of the lands

2.11 It is the responsibility of the lessor and the Band Council to ensure the lease is compatible with the designation and the Band's community land use plan and/or applicable bylaws.

Duration

2.12 A lease must always be for a fixed term. If the designation is for a fixed term, it must terminate no later than 1 day prior to the end date of the designation, unless terminated earlier by its terms or by operation of law.

Appraisal

2.13 The lessee is responsible for obtaining an appraisal by a person accredited by the Appraisal Institute of Canada or its successor. This appraisal must give an indication of the fair market rent of the land being used for leasing. The lessee's choice of appraiser and terms of reference for the appraisal must be approved in advance by the department and First Nation.

Consideration

2.14 Monetary consideration, payable to the Receiver General for Canada in Canadian currency and accompanied by all applicable taxes, must be received in exchange for the granting of a head lease.

2.15 If a fair market rent lease is being proposed after the designation, and a previous fair market rent assessment is outdated or does not apply to the proposed development, then a new fair market rent assessment must be undertaken at the leasing stage.

2.16 Leases may be made to Band-owned corporations for nominal or reduced rent if provided for in the designation document. Otherwise, a minimum of fair market rent must be obtained for all leases.

2.17 Leases may provide for a deferred rent or non-standard payment arrangement if authorized in the designation document. The lease must specify the payment period and the interest to be charged on any deferred portion.

Adjustment to fair market rent

2.18 If rent (including prepaid rent) is less than fair market rent, then the fair market rent, along with any taxes on that amount, will be due for the rest of the term when:

1. less than 100% of the benefits flow to the Band
2. a mortgagee or a receiver claims to assign any part of the lessee's interest or right in the lease or to sublease the premises, or
3. a court order absolutely forecloses the lessee's equity of redemption in the lease, authorizes the assignment of any of the lessee's interest or right in the lease, or authorizes a sublease of the premises

Nominal rent for joint ventures

2.19 A Band (or Band-owned corporation) may enter into a nominal rent lease as a party to a joint venture if the designation provides for such an arrangement. General designations do not allow for joint ventures; such projects must be undertaken with a specific designation that identifies joint venture risks.

Rent review periods

2.20 With the exception of prepaid, nominal or reduced rent, there must be a provision for periodic reviews of the rent based on an appraisal to determine fair market rent in every lease. The following aspects of the rent review process are open for negotiation but must be clearly stipulated within the lease:

1. Review period (frequency): the standard rent review period is 5 years but a longer or shorter period may be negotiated
2. Determination window: the designated time period in which the appraisal must be initiated, obtained and shared with the required parties
3. Responsible party: the party (lessee or lessor) obligated by the terms and conditions of the lease to initiate and obtain the appraisal, and to notify the lessee(s) of the new fair market rent determination

Insurance

2.21 The lessee must ensure appropriate insurance is maintained, at its sole cost and expense, during the duration of the lease, or when removing the improvements and trade fixtures from the premises at the end of the lease. The most common forms of insurance may include but are not limited to construction insurance, errors and omissions insurance, commercial general liability insurance, all risks property insurance including equipment breakdown and business interruption insurance, and environmental impairment (pollution) liability insurance.

2.22 Depending on the uses authorized under the lease, there may be additional requirements for other types of insurance.

2.23 The Band (if a contracting party to the lease) must be included on all policies as an Additional Named Insured and Loss Payee (as applicable). Policies are to include a Standard Mortgage Clause (as applicable). The Insureds will ensure any insurance proceeds are made payable to a trustee and the funds will be used for any repair or replacement as required.

Mortgage

2.24 A lessee may mortgage their interest or right under their lease. The lessee and proposed lender must enter into a mortgage acknowledgement agreement with the department and the Band Council. No mortgage is valid until the lessee and the proposed lender enter into a mortgage acknowledgement agreement.

Ministerial approval

3.1 Departmental officials authorized by the Delegation of Authority Instrument under the Indian Act and related regulations must authorize all leases. Please consult the most current version of the Ministerial Delegation of Authority to ensure the lease is authorized by the appropriate departmental official.

Band Council consent

3.2 The department requires Band Council consent for every lease made directly between the department and a lessee. Consent to a lease prior to execution must occur at a council meeting that is duly convened as per section 2(3)(b) of the Indian Act. The Band Council Resolution must be attached to the lease as a schedule. When consenting to a lease under a general designation, the Band Council will be required to obtain consent through its own community approval process and the Band Council Resolution must state this requirement has been met.

Conditions for lease approval under Indian Act section 53 delegation

3.3 Approval of leases is subject to the terms, conditions and restrictions contained in the ministerial letter delegating authority to the band land manager or person who holds the position to manage the reserve lands under section 53(1). At a minimum, before a lease may be executed, the department must approve the lease and any terms that differ from the lease precedent; the Band Council must also consent to the lease by way of Band Council Resolution.

3.4 Where a Band has delegated ministerial authority and wishes to lease to its own Band-owned corporation, the department must approve the lease as well as undertake the provisions for monitoring for compliance under the lease.

Consent required

4.4 An assignment of a lease will not be valid until the lessee (assignor), the proposed new lessee (assignee), the department and the Band Council (if the Band is a contracting party to the lease) execute an assignment consent agreement in which the assignee agrees to perform and observe all of the lessee's responsibilities under the lease.

4.5 If the lessee has mortgaged its interest or right, the lessee must inform the mortgagee of their intention to assign the lease and must obtain the mortgagee's written consent to the assignment, or obtain a valid discharge of the mortgage before the department can consent to the assignment.

Subleases on designated lands

5.1 A sublease must:

1. be consistent with the terms of the lease and bind the sublessee to all of the terms under the head lease
2. clearly state it is subordinate to the head lease and that the sublease will automatically terminate if the head lease is cancelled or otherwise terminated unless there is a non-disturbance agreement in place, and
3. end at least 1 day before the expiry of the lease (or end upon the early termination of the lease)

5.2 If the lease is for fair market rent, the sublease can be rented out for any rate unless fair market rent is required in the designation document. If the lease is nominal rent, the sublease must be for fair market rent.

Consent to sublease

5.3 Most subleases on designated land will not require Ministerial consent. The department and the Band Council must consent to the issuance of a sublease on designated land in the following circumstances:

1. where the designation document requires consent to subleases
2. when the lease is for reduced or nominal rent, or
3. when percentage rent is charged under the lease

5.4 Where consent is required, a sublease will not be valid until the consent of the Minister and, if applicable, the Band Council has been obtained through the appropriate sublease consent agreement, sublease acknowledgement agreement or sublease non-disturbance agreement.

Non-disturbance agreement — subleases

5.5 A non-disturbance agreement provides that, if the lease is terminated, Canada will not disturb the sublessee's possession and quiet enjoyment of the subleased premises, on the condition that the sublessee continues to comply with the terms and conditions of the sublease. If the designation document authorizes the use of a non-disturbance agreement and if the sublease contemplates the use of a non-disturbance agreement, then the Minister must be satisfied with the terms of the sublease as that sublease will become a direct lease between the Minister and sublessee if the head lease is terminated early.

Land description — subleases

5.6 A sublease may be for the entire land area covered by the lease, but a sublease often applies to only a portion of the leased land. The portion of land to be subleased must be accurately and clearly described in accordance with the Interdepartmental Agreement between the department and Natural Resources Canada.

Environment — subleases

5.7 When significant construction is contemplated under the sublease, rather than at the head lease, the department will require an environmental review at the sublease level.

Assignment of a sublease — subleases

5.8 For an assignment of a sublease, ministerial and Band Council consent is required only if the original sublease expressly contains such requirements.

Mortgage — subleases

5.9 A mortgage of an interest or a right in a sublease (or sub-sublease) does not require the department or First Nation to enter into a mortgage acknowledgement agreement unless otherwise required by the lease.