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Not all that Glitters is Gold: Lease vs. Subdivision

In the application of Alberta’s Torrens-style Land Titles Act, RSA 2000, c. L-4 (LTA), a persistent uncertainty lingers amongst clients and real estate lawyers alike: when does a lease of part of a land parcel become an invalid subdivision of the land parcel? A valid lease may be successfully registered. An invalid subdivision may not. Successful registration is at stake. Successful registration is often the end-all, be-all in Torrens-style systems. Unsuccessful registration can create expensive and permanent issues.[1]

Applicable Law

The touchstone is found in s. 652 of the Municipal Government Act, RSA 2000, c. M-26 (MGA): “[a] registrar may not accept for registration an instrument that has the effect or may have the effect of subdividing a parcel of land unless the subdivision has been approved by a subdivision authority.” This provision of the MGA can make it difficult to ascertain what type of instrument requires subdivision approval before registration can be granted. It is especially unclear when it is applied to leases. Aside from the limited exceptions listed in s. 652(2), the only instrument that is explicitly immune from subdivision approval is a lease for a term of less than three years. This is based on the LTA, which provides that leases with terms of less than three years do not need to be protected by caveat and thus, registration under the MGA is moot.[2] Leases with terms greater than three years are a different story because, on its face, the MGA seems to prohibit a registrar from registering a caveat for a lease pertaining to a portion of a parcel of land and with a term in excess of three years, unless subdivision approval is first obtained.[3]

10-Factor Test

Alberta case law provides a ten-factor balancing test distinguishing a valid lease from an invalid subdivision. It is a test that lessors and lessees can use to ensure their transactions may be registered, and therefore protected, at Land Titles. For the ensuing discussion, we note that the impugned leases in Paskal Holdings Inc. v. Loedman, 2017 ABCA 29 (Paskal) and Knowlton v. Alberta (Registrar of Land Titles), 1982 CanLII 1118 (AB KB) (Knowlton) were deemed valid, whereas the impugned leases in Strathcona (County) v. Half Moon Lake Resort Ltd., 2001 ABCA 50 (Strathcona) and Otan Developments Ltd. v. Kuropatwa, 1978 AltaSCAD 259 (CanLII) (Kuropatwa) were deemed invalid. These factors appear to guide judicial determination of valid lease from invalid subdivision:  

  1. The length of the term. The longer the term of the lease, the greater the risk of it being characterized as a de facto sale, but unfortunately not always. Where a lease has a long term, there should be a bona fide commercial rationale for the length. In Knowlton, the lease term was 60 years. 60-year terms are uncommon. It smelled of a de facto However, the 60-year term made commercial sense because the lessee had to construct the premises and needed time to recoup its investment. While a longer term may suggest a de facto sale, a valid commercial justification can suggest otherwise. By contrast, in Strathcona, the lease terms were 35 years. 35-year terms are not uncommon. It smelled of a lease. However, the leases would transfer certain controls to the lessees that could pose issues for planning authorities. Conversely, while a shorter term may suggest a lease, the relinquishment of certain controls can suggest otherwise.
  2. The nature of the property. In Knowlton, the leased land had industrial and commercial development permits, while in Kuropatwa, the leased property was adjacent to land divided into residential areas owned by the same entity. A lease that aligns with the purpose of surrounding properties is more likely valid when compared to a lease that does not.
  3. Whether the property is fully developed. The cases are varied on this factor. In Strathcona and Paskal, the leased lands were fully developed, while in Kuropatwa and Knowlton, the leased lands were undeveloped. However, in Knowlton, the landlord had certain controls, like inspection access, sign placement, and consent for assignment or sub-leasing. A lease that limit the lessee’s ability to redevelop (i.e., the lessor reserves control), are more likely valid when compared to a lease that does not.
  4. Whether existing or potential development or re-development of the property was an authorized development and, if not, who has the responsibility of dealing with the development authority. The cases do not extensively discuss this point. However, it follows that, if the developments are authorized and the lessor/owner remains accountable to the development authority, this may be indicative of a valid lease.
  5. Whether the lease impacts or potentially impacts on, or affects the purposes of subdivision in more than a transitory way. The courts in Knowlton and Pascal stressed that a valid lease often aligns with development permits or maintains the status quo. By contrast, the court in Strathcona found that a lease may be challenged if the planning authority's ability to enforce municipal law is hindered due to a lessor’s delegation of authority to a tenants' association. A valid lease is more often one that preserves the customary roles of the lessee, lessor, and planning authority, whereas an invalid lease will conflate these roles.
  6. The nature of the lessee. Concerns arise for corporations due to their unnatural bodies. Simply put, a corporation may exist forever, whereas individuals do not. Knowlton and Paskal present a mixed view, as the corporate and individual lessees were found to hold valid leases. By contrast, the courts in Kuropatwa and Strathcona found the nature of the lessee affected subdivision because multiple corporations leased adjacent lots within the parcel.
  7. Any history that points to a colourable transaction. The parties in Knowlton and Paskal had not previously attempted to obtain subdivision approval. By contrast, the lessees in Kuropatwa and Strathcona attempted and failed to obtain subdivision approval. A initial attempted failure to subdivide may render a subsequent lease suspect.
  8. Whether the lease includes an option to purchase. Continued ownership may be indicative of a lease. In Paskal, there was no option to purchase in the lease. The lease also terminated if the lessee vacated the land. The lessor’s retention of ownership smelled of a lease. By contrast, in Kuropatwa, the lease contemplated a transfer of ownership where the lessor obtained subdivision approval. A mechanism providing for a transfer of ownership smelled of a conditional purchase and, therefore, a de facto
  9. When rent is payable. Upfront or nominal rent payments may indicate a de facto sale, unless there is a bona fide reason for this payment schedule. In Strathcona and Knowlton, most of the rent was due upfront. Still, Knowlton had a legitimate reason, as it reflected the discounted present rent value for the term. In Paskal and Kuropatwa, the lessees paid nominal rent of $1/year plus GST, but the transactions resembled sales due to discounted rates and partial ownership transfers. A rationale for unusual rent payments, if any, is crucial in distinguishing a lease from a de facto
  10. The cost of ownership. Where the lessee bears most, if not all, of the ownership costs, the lease smells of a de facto sale as it indicates the parties may be attempting to transfer ownership. In Paskal, the lessee had certain cost responsibilities, but the majority of costs remained an obligation of the lessor. By contrast, in Strathcona, the lessees were accountable for a pro rata share of property taxes and common costs.


Many provinces have elected to deal with this issue explicitly in their planning statutes. In Ontario, for example, a lease for part of a parcel of land does not require subdivision approval as long as the combined term and renewal provision of a lease is less than 21 years.  Any lease that falls outside of that range requires subdivision approval.[4] Unfortunately, the situation in Alberta is decidedly less clear as there are no corresponding rigid rules for separating valid lease from invalid subdivision. However, there are sign posts, which, when coupled and considered together, can provide at least some certainty with respect to lease transactions. Ultimately, each lease must be carefully evaluated to determine its true nature and whether subdivision approval is necessary. Whether a lease is a lease or a de facto sale is a matter of substance, not merely form, and requires a holistic case-by-case examination of, at present, the foregoing ten factors.

Jessie Bachinsky is counsel in the Real Property & Planning Group and Mark J. Risebrough is an associate in the Litigation Group. Please contact either or both of them to discuss how they may be able to assist you.


[1] Angus Partnership Inc. v. Salvation Army (Governing Council), 2018 ABCA 206 ¶ 50-57.

[2] LTA, s. 53.

[3] MGA, ss. 652(4) and (5).

[4] Planning Act, RSO 1990, c. P.13, s. 50(3).



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