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Owning a Building, but not the land – Carman Valley Leader

June 12, 2015

In the December 4, 2014 edition of The Carman Valley Leader , Brown & Associates Law Office posted the following article in their Marketplace Section (online edition found here).

Owning a Building, but not the Land

By Mona Brown
If your building is located on land that’s owned by someone else, there are unique issues that have to be dealt with to ensure that you are protected and ownership does not become a legal headache. The first thing you should do is enter into a formal agreement with the owner of the land. The agreement should include a perpetual right of access to your building and confirm the building is owned by you. Many lawyers have erroneously believed that a structure built on someone else’s property is a fixture and becomes part of the real estate. This is true unless the owner of the building and the owner of the land have agreed in writing that the building remains separate from the realty and is not to be considered a fixture. The best way to deal with a building on land owned by someone else is by written agreement. The common law contemplates this situation and there is case law that confirms the ability to sever the building from the land. If the building is a house or a cottage the agreement will want to preserve your right to the principal residence exemption.

Typical scenarios when this situation arises are:
1) Owners retain home ¼ but sell all buildings to their farm corporation or partnership.
2) Corporation buys land but owner wants to personally buy the residence.
3) The parents own a larger parcel of land and their child builds a second residence or cottage on the same property without an agreement.

The parents die and the child is left unprotected. Without a formal written agreement, the residence of the child is deemed to be a fixture and becomes part of the parents’ real property, and the child is forced to share with all of his or her siblings. The child would not be entitled to the principal residence exemption if there is no written agreement, even if the parties entered into a lease. A normal lease does not keep ownership with the child; it only allows use during a specified term, unless their lease has special clauses.

A good true-life example is a group of cottagers who had a lease at Devil’s Gap at Lake of the Woods. The cottagers’ lease expired and the landlord refused to renew it. The cottagers were forced to vacate, taking only their personal property from their cottages and not the buildings, because they didn’t have a written agreement. Need a loan on your personal buildings? This is easily accomplished by a general security agreement filed at the appropriate registry office and then filed against the title to the land – IF a written agreement is in place.