Leasehold Considerations

Leaseholds are a type of interest in land where the owner has a right of use to a property for a defined period of time. Leasehold units often operate as strata corporations on land that is rented from a landlord, such as a municipality or university. The strata owners and strata corporation own the building but not the underlying land on which it is built. These leasehold stratas are regulated by the Strata Property Act.

Residential leasehold developments are also often found on Indigenous lands. These leaseholds may or may not fall under the Strata Property Act, depending on the specific First Nation on whose land the development is located.

There are a small number of non-strata leasehold properties in B.C., concentrated in the Lower Mainland and southern Vancouver Island. These are usually referred to as long-term leaseholds because the right of use to the property is granted for lengthy term (e.g., 99 years).

Leaseholds are different from other interests in land in several important ways. These differences give rise to unique considerations, including:

• Defined term: The lease associated with a leasehold unit has a defined term. Upon expiry of the term, the leaseholder’s right of use ends. It may also become more difficult to sell or assign a leasehold to another owner as the term’s expiry approaches. The term of the lease is a fundamental consideration of a leasehold property.
• Financing: It may be more difficult to obtain a mortgage for a leasehold unit, particularly as the end of the lease’s term approaches. Potential purchasers should carefully consider their financial position and may need to explore alternate sources of financing.
• Additional fees and expenses: Both strata and non-strata leaseholders may be required to pay fees and expenses in addition to those related to the cost of their leasehold unit. Examples may include property taxes, management fees, or building repairs and upgrades. These payments may increase over time, sometimes unpredictably. Details of these additional fees and expenses will be included in the head lease.
• Decision making: Leaseholders do not have exclusive control over decisions that may impact them, including some financial decisions. Strata corporations provide for participatory decision-making through voting on resolutions and electing a strata council. By contrast, long-term non-strata leaseholds usually do not provide for any leaseholder input or transparency regarding building operations or expenses.
• Leaseholder rights: Leasehold stratas operate under the Strata Property Act. By contrast, long-term non-strata leaseholders are not protected by the Residential Tenancy Act or the Strata Property Act.

• Dispute resolution: When disputes arise between long-term leasehold landlords and tenants that cannot be resolved mutually, the only recourse is civil litigation. By contrast, disputes between strata lot owners and their strata corporation can be resolved by the Civil Resolution Tribunal; disputes about the head lease, however, are subject to civil litigation.
• Home Buyer Rescission Period: Leasehold properties are excluded from the Home Buyer Rescission Period. This means that purchasers do not have a right to rescind a contract and may only back out of a transaction where the contract enumerates conditions which are not met prior to purchase.

Potential purchasers should consult a lawyer with appropriate knowledge of leases prior to purchase. Real estate licensees can assist their clients by encouraging their clients to undertake necessary due diligence on the purchase of a leasehold, including obtaining independent professional advice where needed.