Factors to Consider When Buying Land Lease Cottages

Disclaimer: This article on land lease cottages is intended for the purpose of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

At Beeksma Law, we assist in various areas of real estate law. Real estate is a broad area and includes many facets, from residential purchases and sales to commercial leases. 

Another area of real estate law is that of land leases. In this and the following two articles, we will discuss three different types of land leases: 

• Land lease cottages
• Retirement communities
• Tiny Homes

First, let’s consider land lease cottages. 

What is a land lease cottage? 

A land lease cottage is a cottage situated on a First Nations reserve. It is leased by the band rather than owned by the cottage owner. In this arrangement, the cottage owner owns the cottage itself but does not own the land it sits on. Instead, they pay a rental fee for the use of the band, which retains ownership of the land.

For example, there are two Saugeen reserves near Sauble Beach: Chief’s Point 28 and Saugeen 29. Both reserves have land that the band leases to cottage owners using this arrangement. 

Their current lease agreement provides that cottagers can live in the cottage from May 1st to October 31st.

They can also either:

• stay for ten days per month from November 1st to April 30th for recreational purposes; or
• pay an additional fee of $600+ per month to extend the season for up to two months.

Additionally, all cottage owners must pay an annual service fee of $1,000. This fee covers services such as policing, fire, garbage pick-up, and lighting.

The annual lease fee ranges depending on how close the property is to the lake, but the fee is similar to what property taxes are in the same area.

Why consider a land lease cottage?

Purchasing a land lease cottage in Ontario can be an affordable and enjoyable way to enjoy a waterfront cottage without the expense and responsibility of owning the land. 

For the two reserves mentioned above, a land lease cottage allows you an excellent selection of properties close to or right on Lake Huron. The initial cost is three to four times lower than purchasing a traditional home or cottage. 

Restrictions when purchasing a land lease

There are some factors to consider before purchasing a land lease cottage. 

Your land lease will have restrictions in place regarding access to your cottage. For example, you may only have access to your cottage from May until October.  Additionally, you cannot get a mortgage for the purchase price of a land lease – you must pay the full amount. 

If you buy a home that is on leased property, it’s important to note that you cannot – and likely will never be able to – buy the land.

Additionally, you cannot use your cottage on leased lands as a short-term rental (for example, placing the property on AirBNB) and there may be limitations on how you can change the structure itself.

Factors to Consider Before Purchasing

There are several important factors to consider before making a decision.

Firstly, it’s essential to understand your lease terms. The lease will outline the length of the lease, the rental rate, and any rules or restrictions on the use of the property. It’s important to review the lease carefully with a lawyer to ensure that you understand your rights and responsibilities.

Secondly, it’s crucial to assess the condition of the cottage and any improvements on the property. A professional inspector should conduct a thorough examination of the cottage to ensure that it is in good condition and free of any defects or damage.

Finally, it’s essential to understand the risks associated with owning a land lease cottage. When you lease the land, you do not own the property, and the landowner may have the right to terminate the lease or sell the land. It’s important to ensure that the lease is renewable and transferable and to have a contingency plan in case the band decides to terminate the lease.

Understanding your Real Estate Options

Purchasing a land lease cottage in Ontario means you can enjoy a waterfront property without the expense and responsibility of owning the land. At Beeksma Law, we would be happy to discuss your real estate needs with you and provide any legal advice as you navigate your options. Contact Beeksma Law today to book your complimentary call!