he Provincial Resource-Based Tourism Working Group has met several times over the past few months, and it has continued to focus most of its efforts solving a variety of issues that operators have had with the current land tenure system. Many operators have identified the lack of long term security as a major obstacle to investment in facilities, especially outpost camps.
It has been acknowledged by MNR that Land Use Permits (LUPs) are not the preferred form of land tenure for most of our operations. Because we are making significant long term improvements, leases are a much more appropriate tenure mechanism for the tourism industry. However, there has been confusion on the availability of leases as a tenure option. More importantly, there has not been an agreed upon fee structure or set of lease conditions for our industry.
MNR and NOTO started to negotiate a new fee and tenure structure for our industry several years ago. Those negotiations stalled, but this did not change the provincial government directive that all tenants on crown land be charged rent based on the market value of the land. Our current system of land use permits is not based on market value, but is simply an administrative fee for issuing the permit.
“We are currently the last major commercial group to negotiate a new tenure agreement with MNR. Everyone else has been moved over to a market value based system, with the marina operators being the most recent industry to negotiate an agreement.”
The actual system of arriving at the fee is uniform across the entire Ontario government, and is based on a percent of market value and the type of tenure. Land use permits are charged at 5% of market value per year, with licenses of occupation at 6% and leases at 7%. The challenge is to find a mechanism to determine market value, especially in the case of remote tracts of land.
In order to develop a mechanism to fairly establish land value, MNR engaged appraisal consultants to examine the issue, and prepare a report to support working group discussions. The consultants talked to a number of tourist operators, and also reviewed the only other similar appraisal data available, which was the land value for private recreational camps. They have submitted a preliminary draft to MNR that we hope will be a starting point to move forward.
A number of significant questions still need to be answered. What factors affect the value of recreational camps differently than tourist camps? For example, easy access adds value to a cottage lot, but reduces the value of an outpost. We also need to determine the importance of regional differences and any other factors that affect the value of remote land.
We will be required to move to a system based on market value whether operators remain on LUPs or convert to leases, and this will result in higher fees. The challenge for NOTO is to negotiate a system for establishing land value that is fair and reasonable for both parties.
“What does all of this have to do with converting from LUPs to leases? With increased fees for all forms of tenure, a land use permit may not have the same advantages it had in the past. Although land use permits provided no real security, they were very cheap”
However, if you have to start paying 5% of land value per year for an LUP with no real security of tenure, a 30 year renewable lease at 7% may be a better value. There will be other costs associated with leases as well, such as the need to have the site surveyed, but since a lease conveys secure tenure, it will allow for mortgaging and other improved financing arrangements – so the cost of the survey can be considered as part of the asset value of the entire property.
There is little doubt that many operators would prefer to continue to pay only a small administration fee each year for an LUP. However, we held out for as long as we could and that system is now going to change.
The first change has already begun. Operators will be invoiced for their individual LUPs through the MNR lands branch in Peterborough versus the traditional approach of them being processed at local district offices. Building on this change, the process of consolidating existing occupations into a single multi-site LUP with a ten year term will commence. This means that you will eventually receive a single bill for all of your sites. For the moment, fees will remain unchanged.
Once a property appraisal system is put in place, LUP fees will become 5% of appraised value in accordance with provincial policy. However, for the vast majority of operators with buildings or other significant site improvements, LUPs are not the appropriate forms of tenure. Therefore, it is assumed that during the term of the current ten year LUPs, operators will move their outposts over to leases. It will be possible to begin the transition to leases at any time, and many operators have indicated an interest in starting to move over to leases as soon as possible.
Because leases carry some additional upfront costs such as surveys, we are attempting to negotiate a system that would provide some form of initial relief, such as a phase in of new fees over a period of several years.
We are also continuing to negotiate with MNR the system for establishing land values. We will do everything we can to arrive at a system that is fair and reasonable for the industry and for the government.
As always your feedback on these discussions is important to us. Please call the NOTO office to let us know what you think. You can also contact the tourist operators who sit on the working group with your feedback. They are Brad Greaves from Ignace Outposts at 807-934-2273, Marg Watson from Sudbury Aviation at 705-983-4255, and Hugh Carlson from Viking Outposts at 807-727-2262.
This article was taken from pages 9 & 10 of NOTO's "The Outfitter" publication, Winter 2006 Issue