When a lender takes a mortgage over First Nations land “owned” by a non-Band member, their security is different than the security they typically receive for mortgages on other land. In such a situation, the lender takes a mortgage over a leasehold interest in the land, not over the land itself.
This difference arises because when non-Band members “purchase” First Nations land, they actually purchase a leasehold interest in the land, typically by way of a pre-paid 49 or 99 year sublease. The First Nations land cannot be sold outright to a non-Band member. Instead, a leasehold interest is used, because on First Nations land, Reserve Land is held by the Crown and may, at the request of the Band, be leased to non-Band members and then that leasehold interest can be mortgaged. In the alternative, the Crown can issue an Indian (as defined in the Indian Act) a Certificate of Possession. At the request of the holder of the Certificate of Possession, the Crown can lease the interest in the land to a non-Band member and that leasehold interest can be mortgaged.
It is important for lenders to understand the terms of the lease over which they are taking a mortgage, since the terms of the lease can affect the ability of a lender to enforce their security. The lender’s lawyer must deal with issues such as determining whether there is a requirement in the lease for the consent of the landlord to the mortgage or for any specific clauses which must be included in the mortgage, and confirming the lease is in good standing and properly registered.
If a mortgagee defaults on a mortgage on First Nations land, the lender takes similar steps to enforce their security to the steps they would take on other land. However, the process is slightly more complex and can take longer. If necessary, the lender can foreclose on the leasehold interest. When the court orders that the leasehold interest is transferred to a new purchaser, the transfer will usually have to be approved by the Crown through the Department of Indian and Northern Affairs (“INAC”). Therefore, sales of leasehold interests pursuant to foreclosure proceedings will usually be made subject to court approval and subject to INAC approval. These processes are somewhat different on Westbank First Nation lands, where more modern forms of leases are used and the consent of INAC is not required.
How Pushor Mitchell Can Help
Andrew Brunton is a business lawyer at Pushor Mitchell LLP practicing in the area of First Nations Law. You can reach Andrew at (250)869-1135. Our office offers a wide range of legal services to First Nations communities and their members, and to individuals, companies and lenders conducting business with First Nations or on First Nations lands. Our practice group includes lawyers who have wide range of experiences. For more information on our First Nations Law Practice Group, please visit http://pushormitchell.com/service/first-nations.
