Local governments in British Columbia have greater freedom than ever before to sell real property. Gone are the days when it was necessary for Council or the Board to pass a bylaw declaring land surplus. Under the Community Charter and the Local Government Act, a local government requires only a resolution to proceed with the disposal of land, including land with improvements, as long as the land is not dedicated property such as a park or highway, in which case special procedures are required. However, even in the case of non-dedicated land there are certain statutory notice requirements that must be fulfilled, and there are numerous considerations of a more commercial nature that should be kept in mind during the process.
Real estate law generally is a vast and at times highly complex subject, and this article is intended only as a brief discussion of a few key issues related to selling land, including some issues particular to local governments. Part 1 has a general focus on preliminary matters, while Part 2 (which will appear in the next issue of LoGo) will focus on issues that pertain to the contract of purchase and sale.
Special Considerations for Regional Districts
In comparison with municipalities with their with natural person powers, regional districts are somewhat more limited in their ability to sell land. Unlike a municipality, which need not necessarily advertise land for sale prior to reaching an agreement with a purchaser, a regional district typically must not sell land to a person without first offering it to the general public. Regional districts are subject to this additional “check” or “balance” that requires an opportunity for competition among potential purchasers.
Section 186(2) of the Local Government Act does provide a number of exceptions to this general rule. It says that land need not be made available to the public if the disposition is to a not for profit corporation or a public authority, if the disposition is part of a land exchange, if the disposition is part of a public-private partnership that has already gone through a competitive process, or if the disposition is to an adjoining owner for the purpose of consolidation.
Another key difference between municipalities and regional districts is that regional districts are more limited in how they may use the proceeds of disposition. Section 188 of the Local Government Act requires that such proceeds must be placed to the credit of a reserve fund once any debts related to the land are paid.
In the case of park land, section 188(3) specifically requires regional districts to place the proceeds of sale into a reserve fund for park land acquisition. Section 27 of the Community Charter requires municipalities to do the same.
Appraisal
A typical first step in the process of selling land is determining what the land is worth on the open market. If a local government has chosen to engage the services of a real estate agent, then the agent may be able to assist in determining the market value of the land, but usually a real estate appraiser is brought in to perform a specialized analysis.
Knowing the market value of the land is important, not only so that the local government obtains the best sale price possible, but also to be sure the local government does not offend the rules against providing assistance to business.
Appraisals are often valid for a short period of time only, perhaps 3 to 6 months. Depending on how volatile the market is at any given time, it may be worthwhile to update an appraisal that is more than 6 months old.
Survey
If the land being sold will be created by subdivision, including a road closure, or if the local government will retain a statutory right of way over the land for public works or access to other public lands, then it may be helpful to have a land surveyor prepare the necessary plans beforehand, at least in draft form. In the case of road closure it is actually mandatory, since a survey plan must accompany the closure bylaw.
A survey plan will precisely identify the land for purposes of appraisal, and will also provide prospective purchasers with certainty about what exactly the local government is offering to sell. If a statutory right of way is to be retained, prospective purchasers will know what part of the land will be encumbered by it.
Title Review
A task that should be completed early in the process, and certainly prior to the acceptance of any offer to purchase the land, is a review of legal title to the land. While an appraiser and a land surveyor will each review title for the purposes of their respective services, it is recommended that local governments also conduct a legal review of the title as a whole.
First and foremost, the goal of the review is to ensure there are no restrictions on title that would prevent the sale of the land. Local governments sometimes obtain, by transfer or donation, land that is subject to conditions, such as the condition, for example, that it be used only for park purposes, or the condition that it not be transferred to any other person. These can take the form of limitations on the ownership interest itself, such as a “fee simple on condition” or a “right of reverter”, either of which may permit the previous owner to re-take the land upon breach of a condition, or they could take the form of an option to purchase or a restrictive covenant.
Another goal of the review is to identify any items that can be removed from title to make it more attractive to purchasers. For example, there may be expired development or other permits listed under the “Legal Notations” section. Or, there might be an easement registered as a charge against the land that permits a neighboring property owner to use a portion of the land for access purposes. If the local government happens to be retaining a statutory right of way over the lands for public highway purposes, the easement may no longer be necessary and the neighboring owner may agree to discharge it.
A piece of land is not just a patch of soil, it is also a unique bundle of legal rights and interests, and it is important in every case to develop a clear understanding of what is being bought and sold. No understanding is complete without a review of title.
Site Profile
If the land is being used, or has in the past been used for any of the numerous industrial and commercial activities prescribed by the Contaminated Sites Regulation under the Environmental Management Act, then a site profile will need to be completed, and provided to the purchaser. The site profile is similar to the property disclosure statement used in residential real estate transactions. The site profile requires the vendor to disclose any knowledge it has of contamination or potential contamination on the land, as well as any studies or remediation work that may have been carried out.
The Contaminated Sites Regulation permits a purchaser to waive, in writing, the right to a site profile, but this will usually happen only if the purchaser has a detailed prior knowledge of the land, or is buying the land on an “as-is” basis, in which case it may expect to pay a lower price in compensation for accepting some level of risk. If the purchaser is agreeable to waiving the requirement for a site profile, this should be reflected in the terms of the purchase contract.
Notice of Disposition
For municipalities, section 26 of the Community Charter, and for regional districts section 187 of the Local Government Act, require the provision of public notice prior to the disposition of land or improvements. In the case of a municipality, the exact form of the notice will depend on whether a deal has already been made, or whether the municipality is looking for offers. If a deal is already in place, the notice must identify the land, the buyer, the nature of the disposition (if it is a sale, as opposed to a lease, it will normally be the “fee simple” interest), and the price. In the case of a regional district, or a municipality looking for offers, the notice must identify the land, the nature of the disposition, and the process by which it may be acquired (submission of offers, public auction).
If the land is being sold for less than market value to a person or organization such as a charity, then the local government must also provide public notice of its intention to grant assistance, as required by either section 24 of the Community Charter or section 185 of the Local Government Act. This notice can be combined with the notice of disposition into a single advertisement, but it must clearly state that it provides notice of both kinds, along with all necessary details.
Section 25 of the Community Charter, and sections 181 through 184 of the Local Government Act make it clear that, except in specific circumstances (generally related to heritage conservation or public-private partnerships), a local government is forbidden from providing assistance to business. Among other things, this means the local government cannot sell land to a business for less than market value, nor can the local government grant the business a mortgage, which would amount to lending the business money.
Typically, a business will need to seek private financing to acquire public land, although in some circumstances it may be appropriate to use a form of agreement for sale registered against title to the land as a means of avoiding the mortgage issue. This is something akin to a “layaway” plan for the purchase of the land, which keeps legal title in the hands of the local government until payment in full of the purchase price. Such a transaction is not typical and legal advice should be sought before agreeing to such an arrangement.
Conflicts of Interest and Rezoning
Occasionally, circumstances arise where a local government may consider, or be asked to consider the rezoning of property that it intends to sell. While such a situation may not necessarily run afoul of the law, the best advice is to avoid it if possible. If it cannot be avoided, then extreme caution should be exercised. A council or board must not permit its decision on whether to adopt or defeat a rezoning bylaw to be influenced by an improper purpose or motive, which would include obtaining a better price for the land. Proper zoning and planning considerations must form the basis of the decision.
The danger inherent in such a situation is reflected in the following statement of the British Columbia Court of Appeal in the case of Eddington v. Surrey (District), [1985] B.C.J. No. 1925, at paragraph 5:
From the time that Surrey accepted Woodwards’ proposal in August, 1981, the municipality was clearly in a conflict of interest position. On the one hand, it had to consider the appropriateness of rezoning the lands in question, while on the other hand, it had obviously made up its mind that it desired to obtain the $1,900,000 for its 20 acres and, further, to permit the construction of the shopping complex.
While the court in that case struck down the rezoning bylaw on the basis that Surrey, having withheld information about the proposed development in the lead-up to the public hearing, had failed to “move with scrupulous care to meet the requirements of procedural fairness”, it remains to be seen what the court would have made of the clear conflict of interest had there not been procedural grounds available to strike down the bylaw.
In Surfside R.V. Resort Ltd. v. Parksville (City), [1993] B.C.J. No. 1651, the British Columbia Supreme Court struck down a rezoning bylaw on the procedural basis of insufficient notice of a public hearing. Parksville had for some time been engaged in seeking to purchase the property in question, or to encourage conservation groups to purchase it, in order to protect environmentally sensitive lands.
The court did recognize that Parksville had taken many steps to separate the issue of rezoning from the issue of acquisition, and the court rejected the allegation that Parksville had acted in bad faith with the motive of acquiring the land at a lower price through downzoning. However, the failure to exercise “scrupulous fairness” in its procedure was fatal to Parksville’s rezoning bylaw. As noted by the court, at paragraphs 24 and 25:
Where a municipality finds itself in a position of potential conflict of interest it must, as I have set out, act with greater care than usual to see that its purpose and motives remain directed towards the zoning or other regulation under consideration and not towards any improper purpose. … The other requirement on a municipality where it finds itself in a potential conflict is one of scrupulous fairness in procedure towards the applicant.
What these cases demonstrate is that, at the very least, a local government that considers rezoning land it intends to sell is likely to be the subject of intense scrutiny.
[To be continued in the next issue of LoGo.]
