Buying a Cottage on Leased Land in Ontario: What to Check

A cottage on leased land can look like a bargain next to a freehold property on the same lake. But the price often reflects a trade-off: you may own the building while someone else owns the ground, and your right to stay depends on the lease.

This article explains the main kinds of leased cottage land in Ontario, the questions to ask about lease terms and renewal, and why financing and resale can be harder. Each lease is different, so treat this as a starting point for a conversation with a lawyer.

Three common types of leased cottage land

The first step is always to identify exactly which kind of arrangement you are looking at. A sign, a listing or a seller's description is not enough; ask to see the lease or permit itself.

Crown land: lease versus permit

On Ontario Crown land, the form of tenure matters a great deal. A land use permit allows a specified activity for up to 10 years but is not a form of legal tenure. Upgrading to a lease needs an Ontario land surveyor's survey.

Renewals are handled through the local MNRF district office. If you are buying a cottage on a permit, ask what happens when the permit term ends and whether the arrangement can be renewed or upgraded.

Structures on Crown shore land can also raise permit questions. A structure in physical contact with more than 15 m² of Crown shore land, or shore land close to Crown land, may need a work permit, and doing work without a needed permit is an offence.

Lease terms that decide your risk

Whatever the landlord, the lease is the heart of the purchase. A short remaining term, a rent that can be reset, or a clause that lets the landlord end the lease are all risks that affect the price you should pay.

• How many years remain, and is there a right to renew? On what terms?
• How is the rent set, and can it be reviewed or increased?
• Can the lease be assigned to you, and does the landlord have to consent?
• What happens to the cottage and improvements when the lease ends?
• Who pays property taxes, utilities and road or shared-access costs?
• Are there limits on renovations, additions, docks or year-round use?
• Are there arrears or unresolved disputes the seller has with the landlord?

For private leases, some rules about farm and commercial leases and about long leases under the Planning Act may be relevant, and these should be checked directly with a lawyer rather than assumed.

Financing, insurance and resale

Lenders and insurers look closely at leased land because the security is the lease, not the land. Some lenders may decline, require a larger down payment, or insist on a minimum remaining term. Policies vary, so speak to your lender before you waive any financing condition.

Resale is the other side. A buyer later will ask the same questions you are asking now, and a lease with few years left can be hard to sell. The shorter the remaining term, the more the value tends to shrink, so ask your lawyer how the term and renewal rights affect price.

Tax questions can also come up on a later sale, such as the principal residence exemption. A property qualifies only if it was ordinarily inhabited in the year by the owner or family and it has been designated for that year, and only one property can be designated per family unit each year. Sales of a principal residence, including a cottage, on or after January 1, 2016 must be reported on Schedule 3 even when the whole gain is exempt. Speak to an accountant about your situation.

What to do next

Do your checking before the offer becomes firm. Make the offer conditional on reviewing the lease, confirming financing, and getting the landlord's confirmation that the lease is in good standing.

• Ask for the full lease or permit and every amendment.
• Identify the landlord and ask a lawyer whether their consent is needed for the sale.
• Confirm the remaining term and renewal rights, and for Crown land ask the local MNRF district office about renewal.
• Confirm any structures have the permits they need, including work permits on Crown shore land.
• Get a lender's written position on financing before you waive conditions.
• Ask your insurer whether the cottage can be covered on leased land.
• Have a lawyer review the lease and the agreement of purchase and sale before you sign.

Frequently asked questions