Canada: Development On First Nations’ Land

In Canada, there is an emerging desire for self-government and self-sufficiency among First Nations. Combining that entrepreneurial spirit with the abundance of First Nations’ land in close proximity to urban centres creates significant potential for commercial development. Certain legal features of First Nations’ land and the goals of the First Nations’ need to be addressed to successfully structure private participation in developments on those lands.

Most First Nations’ land which is available for development is known as "reserve land". Title to reserve land is held by the Federal Crown for the benefit of the particular First Nations’ community or "Band". For all practical purposes, the Band and the Federal Crown will not convey a freehold interest in a portion of reserve to a private entity. Accordingly, only leasehold interests are available. In addition, by virtue of the Indian Act, secured project financing can only be created for leasehold interests in "designated" lands. The process of designation requires a vote of the membership of the Band which, if successful, permits the designated portion to be leased for commercial development for the benefit of the Band. For these reasons, most commercial projects involve a lease of a portion of a reserve land which has been "designated".

In negotiating the lease of designated land, it is necessary to deal with both the Band (acting through its elected Council) and the Federal Crown. Since the latter is concerned with its potential exposure to liability for breach of its fiduciary duty to the Band, it will look to input from the Band membership and ensure that the lease is on commercially reasonable terms.

It is possible to structure a variety of legal arrangements depending upon the desired degree of participation by the First Nation. Consistent with the growing entrepreneurship among First Nations, there is a trend away from bare land leases and towards some form of joint venture. A substantial ownership in the development by the Band tends to create greater political acceptance of the development throughout the Band membership which can assist in the designation process and the negotiation of the lease and can have other significant benefits for the success of the development.

Development on First Nations’ land presents substantial advantages over development on other land. Among the most important of these is the fact that the Band, through its council, is also the land use regulating and taxing authority. Typically, reserve land is subject to relatively few zoning regulations in comparison to municipally regulated land. And, since the First Nation is benefiting from the development, its regulatory powers will likely be exercised in a manner that fosters the success of the development. The development approval process can, therefore, be relatively fast and uncomplicated. These features are particularly attractive to retail developers where municipal signage and parking bylaws often present significant challenges to the proposed development.

Another factor which is often fundamental to the First Nation is some assurance of training and employment for individual members of the Band. This again can take many forms, from the agreement of the developer to retain Band members as contractors for aspects of the construction to a commitment to provide "preferential" employment opportunities in the operating business. Obviously, the nature of these agreements will depend, to a great extent, upon the nature of the particular development.

The proposed structure of any development will also include consideration of the tax implications and, in particular, the availability of the exemption from taxation of the income of a Band and its members which is earned on reserve land.

There are significant opportunities to develop First Nations’ land in British Columbia and other areas of Canada which can be seized upon if the underlying legal, social and historical landscape is understood.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.