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ARCHIVED - Treasury Board Real Property Revenue Policy

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1. Effective date

This document contains the policy as revised July 1, 2001. It replaces the version dated November15, 1993.

2. Policy objective

To earn revenue or gain other financial benefits through the sale or other disposition of real property, consistent with current market practice.

Note: For interpretation of this policy in the Province of Quebec, "real property" means "immovable" within the meaning of civil law of the Province of Quebec and includes the rights of a lessee in respect of such an immovable.

3. Policy statement

It is government policy that

  • custodian departments seek opportunities to earn revenue from the real property they administer for program purposes; and
  • revenues received from the sale, transfer, leasing, or licensing of government real property reflect its market value.

4. Application

This policy applies to all departments within the meaning of section2 of the Financial Administration Actunless specific acts or regulations override it.

5. Policy requirements

Custodian departments must seek opportunities to earn revenue through the wider use of the real property they administer for their programs. In doing so, departments must make certain that, in implementing such opportunities, they do not cause a negative impact on their programs and that the wider use is compatible with applicable land use controls.

All dispositions of federal real property must be at market value. This principle applies to the following:

  • sales, leases, and licences;
  • transfers of administration from one department to another that are not a custody transfer as defined in the Glossary;
  • transfers of any interest in real property between the federal government and federal Crown corporations; and
  • transfers of administration and control of any interest of the federal government.

Departments must take into account terms and conditions imposed on the purchaser of a designated heritage building when determining market value.

Departments must develop and consider a range of options from full protection to no protection when disposing of recognized heritage buildings. As well, they must determine the market value on the basis of the option chosen.


Market value determination for various interests in real property is discussed in the Appendix.

5.1 Sale or transfer of real property

Revenues from the sale or transfer of real property must be credited to the Consolidated Revenue Fund. The Treasury Board has authorized the sharing of 100 per cent of net proceeds from the sale or transfer with custodian departments, on the condition that

  • the departments have a strategic investment framework (e.g., a Long-Term Capital Plan) approved by Treasury Board
  • the proceeds are reinvested in real property, consistent with the strategic investment framework; and
  • the departments satisfy the reporting requirements to the Directory of Federal Real Property (DFRP).

5.2 Granting leases, licences, and easements

Leases must

  • be for specific terms, usually the shortest reasonable period consistent with program objectives. The maximum term departments should consider is the period considered normal for depreciating investments using generally accepted accounting principles or the time normally permitted by chartered banks in Canada to amortize loans and mortgages made by a lessee for improvements to the real property;
  • provide for the regular review or appropriate adjustment of the rent receivable, at least every fiveyears, unless the department determines that it is inappropriate to the circumstances of the lease; and
  • contain a clause that will address the issues of maintenance, liability, and vesting of tenant improvements made during the term of the lease. Where appropriate, leases must also contain a provision that, at the option of the Crown, real property is to be returned to its original condition at the end of the lease term.


Leases will also contain other clauses to address the many related government policies, such as those on risk management, accessibility, environment, and occupational safety and health.


  • although not restricted to such uses, licences are the preferred method for allowing for short-time uses of facilities such as conference rooms, gymnasia, and other demands for the use of federal real property in the community interest; and
  • although generally at the pleasure of the government, must, nevertheless, specify a maximum period of use based upon the shortest reasonable period for the use involved and the consideration paid.

Easements must:

  • take into consideration their effect on the value and use, both present and future, of any residual real property, or of any adjacent federal real property held to meet program requirements;
  • be made for a particular purpose and must describe, and limit the right, to that purpose;
  • be limited to the shorter of either the specified term or the period of actual use; and
  • provide for the return of the real property to its original condition when the easement expires.

6. Monitoring

The Secretariat will determine how effective this policy is, find out how it is applied in departments, and decide whether it needs to be revised. It will do this through ongoing contact with departments, consulting with the Treasury Board Advisory Committee on Real Property, and noting audits and reviews conducted by departments or the Auditor General of Canada. The Treasury Board Guide to Monitoring Real Property Management provides information so that departments can monitor and assess policy implementation.


The requirements of this policy should be read in conjunction with the Treasury Board's Cost Recovery and Charging Policy.

7.1 Authority

This policy is issued pursuant to the Financial Administration Act, subsections7(1), 9(1.1), and 9(2), and the Federal Real Property and Federal Immovables Act, subsection16(4).

7.2. Treasury Board publications

Treasury Board Guide to Monitoring Real Property Management

Treasury Board Real Property Glossary


Please direct enquiries about this policy to:

Real Property and Materiel Policy
Treasury Board of Canada Secretariat
140 O'Connor Street
Ottawa ON K1A 0G5
Telephone: (613) 941-7173
Facsimile: (613) 957-2405


Appendix - Issues in Determining Market Value for Real Property Transactions

The determination of market value in a real property transaction is a decision to be made by the department or departments involved. However, departments regularly raise certain common issues relating to this decision with the Treasury Board of Canada Secretariat, through questions or submissions. This appendix highlights several of these issues and illustrates approaches that have been taken in the past to address them.


The evidence leading to the market value conclusion must be clearly recorded for audit purposes in the project file.

1. The use of an appraisal or estimate

The Treasury Board Open and Fair Real Property Transactions Policy requires departments to use current appraisals or estimates to assist in determining market value. In essence, appraisals are to be made for sales, exchanges, or transfers over $250,000 or for sales to the Canada Lands Company CLC Limited, and estimates are to be made for all transfers of administration, leases, and licences, and for those sales, exchanges, or transfers for $250,000 or less.

Departments have asked whether the real property manager needs to go beyond the appraisal or estimate in determining market value. The answer in general appears to be yes. There are many indicators of market value, and the manager must use all available indicators to determine market value.

For example, when property is sold following a public tender or auction, or when it is offered in the open market for a reasonable period and has attracted sufficient interest, the offers received will often determine its market value most accurately. Real property appraisals or estimates have their place in this process. But the market value is often more accurately measured by the responses to the marketing effort.

In sales or transfers that may be completed before the marketing effort, such as in priority sales to provinces or municipalities under the Treasury Board Real Property Revenue Policy, the appraisal or estimate has an increased importance to managers in determining market value. Managers should take into account not only the departmental appraisal but also any appraisals or other evidence provided by the province or municipality. Likewise, when the market value is negotiated, managers should take into account the departmental appraisal and any evidence provided by the purchaser in the negotiation process.

Disposals of partial interests, such as the granting or discharge of an easement, restrictive covenant or right-of-way, rely heavily by their very nature on appraisals, not only of the interest itself, but of the value, both before and after, of the other affected real property interest(s).

When evidence accumulated by the manager leads to a market value conclusion that varies significantly from the appraised value, the manager should review the appraisal with the appraiser and reconcile the differences between the two.

2. Leasing out federal real property

The Treasury Board Open and Fair Real Property Transactions Policy requires that all disposals of federal real property by lease be supported by an estimate of the rental market value of the real property. Rental market value would normally be determined using one of the following methods:

  • a survey of market rents for comparable real property (this is an estimate by definition);
  • the highest rents tendered in response to an advertisement;
  • the rent contained in the best proposal rated against predetermined selection criteria;
  • the fixed rent plus the percentage of gross sales revenue normal for the industry, as determined by survey;
  • the appraised business value of the lease; or
  • any other practice usual to the market for comparable lease situations (see examples following).

Market rent can be affected by the conditions in the lease, restrictions on the use of the real property, and the impact of the tenancy on the rest of the real property. Thus, managers must often develop a model and document the assumptions they use and the conclusions they reach. Some specific lease situations are discussed below.

Retail or commercial: A tenant's overall impact on the rest of the real property can mean that market rent can vary between, for example, anchor tenants, normal tenants, and tenants sought out to provide a retail or service mix that is expected to be an overall advantage to the whole. Thus, quite distinct market rents for different tenants, occupying space at the same location, can occur depending on the lessees' contribution to the whole.

Monopoly situations: Cost recovery or legislated formulae often form the basis for rents set in government monopoly situations. Effectively, these calculated rents become the market rent by their very application and agreement by lessees. However, departments should periodically examine the effect of such applied formulae against available market data to ensure that great gaps do not develop.

Vested improvements: Tenant improvements may have a positive, neutral, or negative effect on market value or market rent:

  • improvements that enhance the use of the property will increase the property's value for sale or rent;
  • improvements that are removed at the end of the lease, restoring the property to its original condition, will have no effect on the sale or rental value; and
  • improvements that detract from the best use of the property will decrease the property's sale or rental value.

At law, tenant improvements generally vest in the landlord unless the landlord and tenant agree differently. Therefore, when leasing out federal lands, a custodian department should ensure that any improvements the tenant makes to the property have, at worst, a neutral effect on the future sale or rental market value of the lands. In addition, departments should make sure that any improvements that may come under its administration at the end of the lease do not represent a liability that the department does not wish to assume and for which it has not been funded.

The Treasury Board Real Property Revenue Policy, which first came out in 1991, requires certain clauses related to vesting to be inserted in leases of federal lands to clarify the Crown's and the tenant's rights and obligations regarding tenant improvements. However, a number of previous leases still exist in which the intentions of the Crown and the tenant in relation to vesting are unclear. These should be examined on a case-by-case basis, preferably with the assistance of legal counsel.

The following scenarios illustrate different approaches that could be taken to resolve vesting issues:

An original lease contained a provision that improvements are the property of the tenant and are to be removed by the tenant when the lease terminates. Near the end of the lease term, the custodian department advertises for a new lease of the lands (on the basis that the improvement is removed) and the former tenant's offer is selected. In this case, the custodian department may determine that it is in the best interests of the Crown to allow the tenant to keep the improvements on the property. The new lease could again provide for the removal of the improvement and could make it clear that the Crown has no responsibility for the improvement. The market rental value would be based on the rental value of the land alone because the improvement remains the tenant's property.

Certain tenant improvements have become the property of the Crown at the end of a lease, although the department has neither a program requirement for the improvements nor the financial ability to undertake normal landlord responsibilities for them. In this case, the custodian department should carefully examine whether the improvement increases or decreases the market rental or sale value of the property. A new lease could require the tenant to take complete responsibility for the improvements and to remove them, at the Crown's option, at the end of the lease. The market rental value would then be based on the rental value of the land and improvements. (As in all cases, the lease conditions would also affect the rental value determination.)

In summary, clarity in the lease is crucial to preventing vesting questions arising at the end of the lease. The issues of ownership, construction, maintenance, and removal of tenant improvements should all be addressed when negotiating leases of federal lands. How these issues are resolved will determine the effect any improvements will have on the market value for a subsequent sale or rental of the property.

3. Granting options to purchase federal real property

Departments must determine the market value of a property before granting any exclusive option to purchase the property. The amount of consideration to be paid to the government for granting an exclusive option to purchase should be at least equal to the costs to the government related to the entering into the agreement and the holding of the property for the option period.

4. Granting licences

Departments must also determine market value when granting licences. The intended period of use of the real property will, in large measure, influence the choice of the method used to determine the market value. In no case, however, should the charge to the user be less than the full cost incurred by the custodian department in respect of the licence.

5.Disposing of contaminated federal real property

The Treasury Board Real Property Environment Policy makes the custodian department responsible for any necessary remediation of contaminated lands. The department can ask the purchaser to carry out the remediation. However, if the purchaser breaches its obligation to conduct the remediation within a reasonable length of time, the department should be prepared to conduct the remediation itself.

Where remediation of a contaminated property is necessary, the market value should be determined on the assumption that the remediation has been completed. If the purchaser has agreed to remediate, the total consideration is the amount of monies paid by the purchaser plus the estimated cost of the remediation that the purchaser has agreed to undertake. This total should be equal to the market value of the property.