Leaseholders living in houses on Musqueam land are bracing themselves for another major increase in their annual rents.
Musqueam Indian Band is pushing for a rent increase eight times more than what leaseholders are currently paying. That would mean the average resident would go from paying $10,000 a year to $80,000.
"Honestly, I don't know how this is going to shake out," said a resident who didn't want to be named.
At a meeting Thursday night, it was a sombre looking crowd. A few had been around for the 1995 round of negotiations, including one elderly lady who was visibly shaken by the memory.
Back then, the band had raised the rent to around $36,000 a year, or six per cent of market value. It was a big jump from the $300 to $400 a year the leaseholders had been paying for 30 years.
It erupted in huge controversy and resulted in a Supreme Court decision that took five years to resolve and cost leaseholders approximately $1.5-million in legal fees. The court ruled that rents could go as high as $10,000 and said that reserve land was not worth as much as fee simple land. The court said Musqueam land was worth half the value of non-leasehold land, and rents should be based on that value instead.
But the band disagrees with the 50-per-cent discount, and has come to the decision that an increase of eightfold is in keeping with market rates. The new amount is based on 6 per cent of the current land value. The houses in this prime section of the west side are 3,000-square-foot houses or bigger, on quarter acre lots, or bigger.
In 1965, the land in the westernmost part of Vancouver, south of Marine Drive, was leased for 100 years to the Musqueam band by the federal government. There are 75 parties that are subleasing houses from the Musqueam, and they've paid between $300,000 and $700,000 to buy in. On top of that amount, leaseholders pay annual rent as well as taxes, in the order of $9,000. Rents are reviewed every 20 years.
The houses are on large lots, some of them with pools, and they're close to the University of British Columbia, Dunbar and Kerrisdale. In a letter to the leaseholders, the band says,
"… property value on the west side of Vancouver for single family homes in the 20 years since the last rent review have gone up by about 400 per cent."
Without a doubt, the value of those spacious houses in that tony part of Vancouver have gone up substantially in the past 20 years.
However, resale of leasehold properties can be difficult. Most people would prefer to own title to their property, while a leaseholder is only renting the land for a period of time. And by 2065, the head lease with the crown will end. As that date approaches, the subleases will likely depreciate because of the uncertainty of what could happen.
As well, there are the big rent increases, which can be a shocker for anyone on a fixed income, such as the elderly pensioners that rent there.
The fact that this is potentially the second dispute over rent increases alone could affect resale values.
"If the rents are so high that it's beyond what the cost of living in Vancouver would be, there would be no attraction to the property," says mortgage broker Rob Macdonald, who works with Invis Team Rob Regan-Pollock. The company has handled several leasehold cases.
As well, leasehold properties that aren't prepaid leases are considered a risk by lenders. And banks generally only finance leaseholds that have at least five years remaining on top of the amortization period.
"It's not as easy to arrange financing on a piece of leasehold, whether native or government lease," Mr. Macdonald says.
He says about 90 per cent of the lenders he deals with would demand the lease is prepaid in order to provide financing.
Real estate agent Tom Jones lists several current listings on Musqueam land, ranging from $658,000 to $738,000 for 4,000-square-foot homes.
"Most people that purchase non-prepaid leases do so as cash buyers, line of credit or through private financing," he says on his website.
A woman at the meeting said her house had no value in 1995, as a result of the rent hike.
So why buy into a leasehold in the first place? Leaseholds work for some people because they are generally nice areas at a discounted rate.
"It would have to be discounted because of the lease nature," Mr. Macdonald says. "And they realize there is a risk to it, but if you are 65 and can own a property at a discount and still sell it, they might not get market value, but it's an alternative to renting."
The resident I interviewed had purchased their house for $500,000. If it weren't for the current negotiations under way, the house would be worth about $700,000. When they bought in, they "did the math," and figured that it was a good deal considering the quarter-acre property. They also didn't think that when the rent came up for renewal the Musqueam band would push for a major rent hike again.
Realtors had cautioned them at the time that they could be entering into a potential mess.
"I wouldn't just warn people away from this [situation]. I would say, 'run away.'"
They aren't "fat cats," one person at the meeting said. They're "renters," average people who've lived on the west side as it's undergone immense transformation. Southlands and Dunbar used to be middle-class neighbourhoods until relatively recently, and these renters are caught in the crush of a market that's gone bonkers.
The leaseholders expect to receive formal notice of their new lease rate on April 8. In the meantime, the two sides have been meeting regularly to negotiate a deal. So far, offers by the leaseholders have been rejected, including an attempt to enter into a prepaid lease.
There are about 144 homes in another parcel of the reserve that are prepaid leases, and, as a result, headache-free for those owners.
It will be interesting to see how the negotiation plays out. Both sides are looking for a "fair deal." The problem is in defining what "fair" means in a city that has become one of the most unaffordable in the world.
"The worst case scenario [for leaseholders] would be they just walk away if they can't afford it," Mr. Macdonald says.
"Musqueam will shoot for as high as they can get, but they will have to be reasonable at the end of the day. That's what we saw 20 years ago.
"There has to be a compromise in there. The last thing they want to do is set the rates too high to the point where people move and don't pay. Then they're sitting on a bunch of vacant properties."