Housing construction booming on WFN but should you buy lease land?
When Troika Developments started marketing its West Harbour resort community on Westbank First Nation land a decade ago, there was some stigma to overcome.
“Initially, there was some reluctance in the marketplace to buy lease-land product, especially if you’re coming from Alberta,” Brad Klassen, co-CEO of Troika, told iNFOnews.ca. “Even down in Vancouver there has been issues with First Nations lease lands so we had to work really hard at overcoming those concerns and really having to educate people on what it meant to have a 99-year prepaid lease and what it meant to have a lease with Westbank First Nation.”
That educational process seems to have worked since, as of two years ago, 230 homes were sold.
“It’s a 99-year prepaid lease,” Klassen said. “There’s virtually no difference getting house financing. The Westbank First Nation lease is the gold standard for First Nations leases. It has self-government. It has its own land registry, unlike many of the situations in Vancouver or Alberta. That was part of our marketing strategy on educating people and taking away those concerns.”
Westbank is one of the few bands in the country that has self-government.
Other bands have a different but equally secure leasing structure where they arrange for the federal government to be the head landlord on the leasing arrangement.
The Tk’emlúps te Secwepemc in Kamloops does that with the Sun Rivers resort housing development.
“Experts consider this lease agreement to be one of the most comprehensive and secure ever established,” the band says on its website.
The current model, in both cases, is for the full lease to be paid up front (now for 125 years, in most cases, in Westbank) rather than have annual payments that can be modified in the future.
Residents in Sun Rivers or West Harbour do have to pay strata fees but that’s for the amenities provided by those resort communities.
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Westbank First Nation has outpaced Penticton, Vernon, Kamloops and West Kelowna in terms of how many building permits for homes it has issued this year (595 by the end of August) and has surpassed both West Kelowna and Penticton over the past five years.
That implies that the stigma of lease land has been overcome.
The Westbank First Nation does cite some financial advantages to leasing.
“Purchase prices can be lower with closer lake access and better views,” it says. “Not buying the land saves you money which enables you to purchase a higher quality place in a more expensive area than you might not otherwise be able to do.”
It says buyers can save $55,000 on an $800,000 home.
That's because, on new homes, there is no 5% GST or the graduated 1-3% land transfer tax. And, unlike the surrounding West Kelowna and Kelowna areas, Westbank First Nation land is not subject to the speculation tax.
The property values are pretty much on par with freehold land.
“BC Assessment might give it a slight discount in value because it is on lease land but we didn’t see a significant discount that led us to discount the homes,” Klassen said.
That doesn’t mean leasing land is without its issues.
One problem the West Harbour buyers ran into was house insurance.
“Insurance is sometimes challenging unless you’re dealing with a local broker who understands lease land,” Klassen said. “We get questions all the time from new homeowners out there: ‘Our insurance company won’t cover it.’ Well, you’re talking to the wrong insurance company.”
And there is still the history other bands have faced in Vancouver and Alberta.
Most familiar to BC residents is the Musqueam conflict with leaseholders in Vancouver back in the 1990’s.
In 1960, the Musqueam band started selling 99-year leases near the tony Shaughnessy Golf and Country Club at $400 per year.
That rate was renewable after 30 years so, in 1995, the band upped the leases up to $10,000 per year. Then, in 2015, the band tried to increase them to an average of $80,000 per year.
That went all the way to the Supreme Court of Canada. The dispute centred around the assessed value of the land so it now sits at an average of less than $25,000 per year from 2015 to 2035.
In Alberta, there was a dispute with residents at the Hidden Valley Golf Resort, near Calgary, when that 50-year lease with Siksika First Nation expired in 2013. A renewal was negotiated in 2012 but voted down by band members.
Before a new deal could be reached the community was wiped out by a flooding Bow River and years of litigation ensued, leases weren't renewed and owners tried to get disaster relief.
The community of Redwood Meadows, west of Calgary, had a 75-year lease with the Tsuut'ina Nation that was set to expire in 2049. By 2020, banks were refusing to provide mortgages beyond the life of the lease.
It took four years to negotiate a lease extension and a vote was held in 2020 to move it to 75 years again.
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Those kinds of disputes are not expected to happen on Westbank First Nation land and, given the fact the leases are prepaid and how long they run for, mortgage issues should not come up for a long time to come.
Westbank did not start leasing land until 2005. Even an 80-year lease – as some were at that time – won’t run into the 30-year mortgage renewal constraint until 2055, or later, depending on when the lease was signed. A 125-year lease issued today won’t run into that 30-year amortization question until 2119.
Besides, after 125 years, the home will likely need to be replaced anyways so, at that time, new lease rates and lengths could be renegotiated in line with redevelopment, Graeme Dimmick, the manager of planning and development for Westbank First Nation, told iNFOnews.ca.
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