The sale and conveyance of air rights is gaining more prominence in Toronto and other Canadian jurisdictions to help address the shortage of developable land in urban areas. Air rights or the property interest in the space above a piece of land or the structures already located on these lands, can be parcelized and bought, sold or mortgaged in many of the same ways as traditional real estate.

In the video below, Savvas Kotsopoulos, partner in the Real Estate practice at Osler, outlines the key legal considerations involved in developing air space.

Video transcript

SAVVAS: Hi, I'm Savvas Kotsopoulos, a partner in the Real Estate group at Osler based in Toronto.

The sale and conveyance of air rights is gathering interest in Toronto and other Canadian jurisdictions, in part due to the shortage of developable land in urban areas. In Toronto and Vancouver, where there is limited urban land available for development, the prospect of extracting additional density possibilities through the acquisition of and development into air rights is gaining more prominence.

Recently, Osler's Real Estate group worked on a transaction whereby an institutional owner of a historical building in Toronto conveyed its freehold entitlement to the air rights over the top of its building to an adjoining landowner. This permitted the adjoining landowner (a condominium developer) to obtain the approval for the construction of a 39-storey mixed-used commercial and condominium tower that is designed to cantilever in some parts over the top of the client's building and into its air space. In the absence of this design, the small size of the developer's parcel would not have accommodated this level of densification.

The term "air rights" is generally defined as a property interest in the space above a piece of land or the buildings/structures that may be located on these lands. Owning the land or a building generally includes the rights to develop and use the airspace above that land or building, subject to applicable laws that affect those lands. In Ontario and BC, for instance, these air rights can be parcelized as a separate piece of real estate and bought, sold, mortgaged, and dealt with in many of the same ways as a piece of land in the traditional sense.

Unlocking additional density on top of existing infrastructure or buildings can help address residential housing needs near public transit, create new public spaces and parks, and improve access to public services. For local governments, permitting the development of otherwise unused airspace could, depending on the scope of their legislation, generate tax revenue and increase the value of surrounding lands.

Creating an air rights parcel above a horizontal plane requires the application of the appropriate legal tools. Land titles legislation in Ontario and B.C., generally supports the ability to convey and create parcels of air space. In Ontario, in particular, the subdivision control provisions in the Planning Act will need to be considered and complied with.

When it comes to opportunities for developing air rights, there are fewer examples of this type of development having been completed in Toronto, than in other markets, such as New York and Chicago. Accordingly, the industry is less familiar and experienced with this type of development, which will require a developer to carefully select and spend more time and effort with its consultants, partners and lenders in working through the inherent levels of complexity.

On the financial side, there can be much higher hard and soft costs involved in developing air rights, which could impact how the development is financed. Developers will likely encounter physical conditions and limitations that make developing air rights more difficult and that require unique engineering solutions to permit the development to proceed.

To meet all regulatory and planning requirements that apply when creating new air space parcels and the inherent levels of complexity, it is key to work with experienced legal advisors, surveyors, architects, and planning consultants from the very beginning.

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.