Land Lease in Ontario

Traditionally, home ownership in Canada is of two kinds - the first is freehold ownership, in which the resident owns the house and the land under it. The owners are responsible for the upkeep of the house and land. The second is ownership in a condominium corporation, where the owners own their individual units and jointly own the common areas. They maintain their own units and the common areas are managed by the condo corporation. However, there is a lesser known third kind of ownership which is land lease ownership. Apart from leasing land for housing, it can be leased for recreational, agricultural and commercial purposes from different types of lessors as discussed on this page.

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Simply put, land lease housing is where the dwelling unit is owned by the resident, however, the land on which it is built is leased. The resident pays a rent or a monthly fee to the landlord for leasing the land. The purchase prices of these properties are typically much lower than freehold houses as the land is not being purchased.

Land lease properties might not always be listed on the common listing platforms but if you see a listed property that is significantly cheaper than the nearby properties, it is likely to be a land lease property. Buying a land lease property can be a tricky affair. A buyer must study all the aspects carefully and consider the following before buying:

• Time remaining on the lease - This would affect the mortgage and property value. If the land lease is about to expire, you would likely not be able to receive financing to buy such a property.
• Terms of the surrender clause - If the land lease expires, you may have to surrender all structures built on it, unless the lease is renewed. In some cases you may be allowed to keep owning the house, but it is practically impossible to move a house from the land unless it is a mobile home.
• HOA fees - You might have to pay HOA fees every month if your house is in a planned community. The HOA fees can vary depending on the amenities and services available to you.

For buying a house on leased land in Ontario, the Residential Tenancies Act (RTA) applies. The length of the lease is normally 20 years in accordance with the Planning Act of Ontario, but can be renewed at the end of the lease term. The lease is transferred to the subsequent buyers of the house when it is sold.

There are several planned land lease communities across Ontario that are developed by real-estate developers, many of them being retirement communities. The monthly rent for the land is paid to the landlord who owns the land of the leased community. The landlord may provide amenities and services to the tenants for common use such as a pool or a playground, and the fees for such facilities are usually included in the rent. Often, such communities are a part of a homeowners association (HOA), in which case the residents pay HOA fees to the association.

Another example of land lease housing is mobile home parks, where the mobile homes are owned by individual owners, while the land is owned by a landlord.

There are three main types of land leases in Canada

1. Planned Communities - Commercial real estate developers develop communities where the residents just need to buy the house, while the land remains the property of the developer. Retirement communities are often based on such models. This type of development can also be seen in some urban areas.
2. Institutional Land - This category includes lands belonging to public institutions and municipalities that have dedicated pieces of land which are available to be leased.
3. Land belonging to First Nations - First Nations of Canada have been leasing reserve lands for private use. These leases are particularly popular with those looking to own cottages at a lower price.

Advantages -

1. Free up money for other purposes - Land lease houses being cheaper than freehold houses require a lower investment, freeing up money for other investments and purposes.
2. More Affordable - As the prices of such houses are lower than freehold houses, the mortgage amount is typically much lower making it a more affordable option, especially for first-time buyers and retirees looking to downsize.
3. Lower property Taxes - Property taxes depend on the value of your property, and as the value of your home would be lower because of not owning the land, you would end up paying much lower property taxes every year.
4. Better Amenities in the Community - Very often land lease houses are a part of a planned community which comes with amenities and facilities that the community can enjoy. The landlord may also provide maintenance facility for the residents.

Disadvantages -

1. Monthly Rent for the Land - Even though you are only buying the house and not the land, you still ought to pay a monthly rent for the land.
2. HOA Fees - Very often, a land lease house is a part of a planned development where the residents need to pay monthly HOA fees for the maintenance of common amenities, even if they don’t use them.
3. Lower Home Equity than Freehold - In a land lease home, the owner does not grow any equity in the land and thus, the equity is much lower than in freehold houses. Thus this may not be an attractive investment option for those looking to build equity. Depending on the conditions of the lease, the homeowner may be at the risk of losing all equity at the end of the lease term. Also, the value of a home may significantly decrease as the lease term approaches its end.
4. Tricky to get a mortgage - Many lenders may not be willing to finance a land lease home, and those who do might ask for a higher percentage of the purchase price as a down payment compared to when buying a freehold house. The lease tenure might also affect the mortgage tenure. For example, if the lease tenure is 20 years, you would not be able to get a mortgage amortization for 25 years. For the same reason, it may also be difficult to find buyers for such homes when you decide to sell.

Land lease and renting are similar in many ways and you need to consider what your goals are before picking what’s better for you. Some people may pick land lease over renting as they can build some equity in their house while paying a rent for the land. However, there would likely be some restrictions on how you can use the land and it may be difficult to sell such a house when the lease is nearing its end. If you are looking for more flexibility and freedom, and your end goal is to pass on the house to your heirs, you might be better off renting while saving for a down payment for a traditional freehold home.

One of the ways of owning a cottage in Ontario is buying one built on land leased from the First Nations. These cottages can be much cheaper than fully owned cottages, and often have great locations in close proximity to a lake. Ontario is home to the largest recreational lease arrangement located along Lake Huron near Sauble Beach, where the Saugeen First Nations have leased land to more than 1200 cottagers. The annual lease fees for waterfront properties can be around $9000, whereas the lease fees for inland properties can be around $6000.

You should keep the following in mind when looking for a land lease cottage -

• Some restrictions on use may apply. For example, you may not be able to use the cottage for more than a certain number of days during some months.
• In addition to the lease fees, you may have to pay a service fee for services such as garbage picking.
• Banks do not give mortgages for buying land lease cottages. Private mortgage lenders might give you a loan, but most people buy such cottages using cash or a Line of Credit.
• You cannot use the cottage for commercial purposes, for example, rent it out to other people.

87% of all land in Ontario is crown land owned by the provincial government. The public lands of Ontario are managed by the Ministry of Northern Development, Mines, Natural Resources and Forestry under the Public Lands Act (PLA). The provincial policies of Ontario allow for the sale or rent of crown land and recognize the importance of projects that can provide socio-economic benefits to the communities of Northern Ontario.

Crown land for residential development can only be leased within municipal boundaries. The value of crown land is considered equal to private land and the annual rent amount is based on the market value of the land. As per the Crown Land Rental Policy, following are the rents for some common uses of crown land, where the value of the property is known:

Annual Rent as a % of market value

Source: Ontario Ministry of Natural Resources and Forestry

A lease provides exclusive rights on such land without giving its ownership. The following specifics apply to leasing a crown land:

• The lease term is usually 20 years, but a longer term may be negotiated.
• The proposed project must significantly improve the land.
• The intended land use should not have any future environmental or financial liability.
• It is possible to use this land as collateral.
• The granted right may be transferred if approved by the ministry, and renewal may also be negotiated.
• A land survey is required.

Apart from residential purposes, Ontario also allows for the Leasing of Farmland. This is a common practice in rural Ontario as this requires a much lower capital investment than buying land. It can be a great way for inexperienced farmers to get started and understand the farming business before buying land and committing to it. This way, the farmer can also invest more in the seeds, fertilizers and equipment rather than in land. There are three main types of leases -

• Cash Rental Lease - The tenant pays a fixed amount of rent to the landlord every year.
• Crop Share Lease - Sales from the crop are divided between the tenant and landlord. There is a greater degree of profit and risk sharing in such an arrangement.
• Flexible Cash Rent Lease - The tenant receives the entire amount from the sale of crops but pays the landlord a rent amount determined by the yield and price of grain in that year.

There may be several tax implications in leasing farmland for both the tenant and the landlord. It is advisable to consult a tax accountant and discuss individual circumstances before deciding to lease.

Apart from leasing private land, crown land can also be leased for farming. In the Toronto region, the TRCA (Toronto and Region Conservation Authority) has also leased over 400 hectares of agricultural land for urban agriculture. These lands are located in urban regions and are a source of fresh and local produce for nearby neighbourhoods.

Infrastructure Ontario manages several government properties across Ontario, and it is possible to apply for leasing available vacant lands and spaces in buildings managed by them. The interested party must fill in the Infrastructure Ontario Building/Land Lease Request Form to start this process.