Risks When Leasing Partial Parcels of Land

Published in Orchard and Vine Magazine on: February 6, 2013

A properly prepared lease agreement provides a lessee with the exclusive use of a specified parcel of land for a specified period. This means a lessee, say a farmer, gets a stake in the land that is good against people that may come along later and claim rights to the leased land. The lessee may even register that agreement at the land title office, protecting the lessee should the owner sell the land or, in some circumstances, lose it. Many leases are only for a portion of a legal parcel of land, and many growers in these agreements may not realize they may have no protection or very limited protection when they are only leasing a portion of a parcel.

The need to make sure the lease is in writing and properly prepared by a lawyer cannot be overstressed.

The validity of a lease may be affected by whether the entire parcel or a part of a parcel is being leased and the term of the lease. Recently on Castanet, I saw an ad for the long term lease of 10 acres of an 18 acre property for a vineyard.

This scenario is quite common with orchards and vineyards where the land owner has their personal residence on the land and only wants to lease the remaining portion.

If your current lease agreement looks like this you may believe that under a long term lease (over three years) for a part of a parcel, where you are investing funds in trellising or irrigation acquires is creating an interest in the land. That is likely not the case; an interest in land is not created.

If the date of the lease is after May 31, 2007, a properly drafted lease between the parties should be considered a valid contract giving rise to remedies for breach of contract in the case of default. This is some consolation for a tenant, but falls short of the benefits of having a legal interest in land.

A lease for a portion of property for a term of more than three years entered into before May 31, 2007, where the leased portion was not legally subdivided from the remainder, will violate the Land Title Act and be an illegal and unenforceable contract. In this situation, an interest in land is not created and the contract between the parties is void.

Parties to a lease that fits into these criteria could potentially walk away from the contract without penalty or the need to provide a remedy to the other party for their loss. This restriction protects a municipality’s authority to retain control over subdivision and prevent a property owner from subdividing at will.

Since May 31, 2007, lease agreements for part of a parcel for a term longer than three years will still not result in a registrable legal interest in the land in favour of the tenant capable of registration with the land title office, but a properly drafted contract will be enforceable between the landlord and tenant as parties. This means the tenant will have acquired contractual rights with the landlord alone and vice versa. A remedy for a breach will be limited to a claim against the other party personally. To use an extreme example, if your landlord sold the land in the middle of your lease, you could sue the landlord personally, but likely not the new owner.

Care must be taken when drafting leases for a part of a parcel. Leases are complicated and subject to many legal principles and considerations. Ensure you have your lease agreement prepared and reviewed by your lawyer.

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