Thursday, January 14, 2016

Land Holding in Nunavut

 Article 14 of the Nunavut Land Claims Agreement provides that almost all lands within a municipality are to be transferred to the municipality (in stages).

Additionally, a referendum will be held to determine if the municipality must hold the lands or if the municipality can sell the lands. The municipality is not obliged to sell all or any of the lands it holds but it can so do; but only if allowed by referendum.

 Whether saying yes to land sales from a municipality is a good idea or not is a contentious issue. Certainly allowing land ownership can give people a sense of pride and an incentive to improve their property. On the other hand such sales can lead to land speculation – a fact seen in the South where many ordinary people are priced out of the housing market (not that housing in Nunavut is cheap!).

Regardless of your view on the referendum issue, clarity as to what land holdings mean is important. Under the Land Claims Agreement what the municipality gets is ownership of municipal lands in fee simple. If the referendum allows the municipality can then transfer land to other again in fee simple. If the referendum does not so allow transfer the municipality can only grant partial interests in land for a period of less than 99 years.

What does that actually mean?

Fee simple is regular land ownership. If I have a property that I own in fee simple I own it completely and forever. I may only own the surface rights (the mining rights may be owned by others) but I do not have to pay any rent, my ownership is not time limited and I can sell or mortgage the land as I see fit. When the municipalities receive title in fee simple that means that, subject to the Land Claims Agreement, the municipalities own the land. This type of land holding is pretty standard in the rest of Canada (with a few twists for Quebec) and is well understood by banks and financial institutions. 

Partial interests in land inevitably amount to time limited leasehold interests. So a land lease where the home owner owns the building but only leases the land is common in Nunavut now. As a practical matter, there is little difference between the start of a 99 year lease and fee simple ownership. But after 50 years the value of a 99 year land lease will start to erode.

For now banks and financial institutions have accepted land leases for financing purposes but over time it seems reasonable to assume they will lend less on aging land leases.

 This last point is of great significance. Small business owners often finance their businesses on their residences.

A lack of financing from residential mortgages or lines of credit can be a big problem. Beyond that for many people retirement is funded by the sale of the family home paid for over many years – if that home is not worth much because the land lease is expiring elders can face serious financial hardship.

All this is to say if transfers of title in fee simple to residents are not going to be allowed some thought has to go into what will happen in twenty or thirty years as land leases begin to lose their value.

No comments: