Navigating Lease Creation on Reserve Land
By Melodi Alopaeus
For many First Nations, engagement with third-party developers presents a strategic opportunity for economic advancement in their communities. Development on a First Nation reserve is a unique undertaking owing to a separate property law regime that governs reserve land. Reserves are held by the federal government for the benefit of the First Nation. This means reserve land can’t be owned in the same way that non-reserve property is owned. The greatest interest that a developer can acquire on reserve is a leasehold interest. Against this legal framework, a lease is usually the primary vehicle for partnerships between First Nations and developers. While full of economic possibility, navigating lease creation on reserve includes important signposts and potential pitfalls for landlords and tenants. Missing an exit could lead to a costly detour.
The first signpost: don’t bypass the Indian Act. Under the Indian Act, only the federal government can grant interests in reserve land. That means that unless a First Nation has opted out of Indian Act land provisions (as discussed below), Indigenous Services Canada must be involved in leases on reserve. Indian Act requirements and processes must be observed.
First Nations and developers that rely on informal leasehold agreements on reserve without government involvement do so at their own peril. The case of Ziprick v Simpson Estate, 2020 BCSC 401 (“Ziprick”) offers the most recent cautionary tale for these commonly termed “buckshee leases”.
Ziprick involved two non-Indigenous companies (the “Companies”) that had operated a mobile home park called Creek Run Park (the “Park”) on Okanagan Indian Band (“OKIB”) reserve lands for nearly 27 years. The reserve lands were held under certificates of possession (“CP”). The plaintiffs were the current CP holders, children of the original CP holders. The plaintiffs claimed that the Companies were trespassing on OKIB lands because the Companies had never obtained a head lease from the federal government to construct and operate the Park, as required by the Indian Act.
The BC Supreme Court agreed with the plaintiffs: the Companies were in trespass. It didn’t matter that the CP holders had established agreements with the Companies for the development of the land. Or that the Companies had discussed with and received assurances from the original CP holders that a head lease would be secured. It was also immaterial that the Companies had invested significant sums of money in Creek Run Park, including constructing a bridge, sewer system and other infrastructure on OKIB lands. Without a head lease from Indigenous Services, the Companies were operating illegally.
The Court firmly reiterated that only the Minister of Indigenous Services may grant interests in reserve lands on behalf of the Crown. Any non-band member without a government-issued lease or interest on reserve is in trespass (Indian Act, ss 20–29, 37–41, 58(3); The Queen v Devereux, [1965] SCR 567). Leases that circumvent the Indian Act process are illegal and unenforceable. The Court awarded the plaintiffs $250,000 for trespass and loss of use of the lands. The Court also dismissed the Companies’ counterclaim for more than $3 million for the lost value of Creek Run Park and associated damages.
Ziprick contemplated CP lands. Indian Act provisions governing general reserve lands are even more complicated. Reserve lands must be set apart for leasing through a designation. A First Nation referendum vote held in accordance with Indian Act regulations is required to approve the designation to be formalized by an Order in Council. The prospective tenant must be alive to further Indian Act requirements, such as an appraisal and environmental assessment of the property, and a term limit of 99 years.
Not all First Nations have to worry about the full spectrum of Indian Act land provisions. Some First Nations have opted out of certain Indian Act land management provisions under the First Nations Land Management Act (“FNLMA”) and enacted their own Land Codes to govern land matters. The FNLMA gives First Nations considerable freedoms to manage their reserve land independently. Among other rights, First Nations may enact land laws regarding rights and licences, hold property and transfer interests in their lands without government involvement.
Establishing a lease on lands governed by a First Nation Land Code presents its own caveats. First Nations and developers should ensure they carefully review and understand the provisions of the First Nation’s Land Code and any related by-laws the First Nation may have enacted. Land Code and by-law terms can limit or place conditions on development activities on reserve. These terms can also impact lender interests. For example, approval of leases on reserve may require a community referendum or may be restricted to a set term. A Land Code might also impose restrictions on assigning, subleasing, or mortgaging leases or create impediments to foreclosure.
The same considerations apply to the lands of self-governing First Nations or those that have negotiated modern treaties. Although more independent, these First Nations may have unique restrictions and processes for establishing leases on their lands.
First Nations keen on partnering with third-party developers tend to adopt Land Codes or laws with flexible, less restrictive terms. This approach can be very appealing to developers and lenders and in turn, may attract more investment on reserve. First Nations may want to review their Land Code provisions or laws to assess whether they align with their current economic goals and priorities. For First Nations that have not enacted a Land Code, doing so may open the door to new economic opportunities in addition to increased autonomy over land interests.
Whether First Nations and developers are seeking a lease under the Indian Act, Land Code, or modern treaty, a good navigator always helps. If you would like advice on creating a lease on reserve or developing a Land Code for your First Nation, please contact us. We would be happy to assist you with your land planning needs.
Photo: Salish Bear Pole at Malahat Summit, carved by Stanley Modeste, photo by Erica Fritch