Mortgaging a leased property can sometimes be tricky, but if the file fits certain conditions, it is definitely not impossible.
But, what is a lease anyways?
A lease is the right to the beneficial interest (as opposed to the legal interest) in property. In simplistic terms, it’s the right to use the property even though you’re not on title as the owner.
So, if your borrower has a long-term lease on a property, can they mortgage their leasehold interest?
Generally, the answer is yes. But certain conditions will need to be met in order to secure a mortgage:
Conditions such as:
- If the term of the lease is long enough.
- The conditions of the lease are properly drafted
- The lease is in a registry where a mortgage of that lease can be registered.
If these conditions are met then that lease can likely be acceptable security for a mortgage.
Now, as a broker, where are you likely to come across mortgages of a lease?
There are in fact a couple of popular instances. For example: there are long-term leases in the False Creek area of Vancouver. While you would most likely think they would be strata-titled properties, the buildings in fact fit all the above conditions of a leasehold and could absolutely be mortgaged as such.
Another instance where leasehold mortgages are common is property developments on First Nations’ land. The band, either on its own or through the federal government, registers a lease in favor of a developer. The developer then sells the homes by way of sub-lease. If the terms of the head lease are satisfactory to the lender, they are often accepted as security for a mortgage.
While mortgaging a leased property is less common than mortgaging freehold property, they do still come up from time to time. So, if a lease mortgage does come across your desk, be sure to ask around. You will find there are often lenders who are happy to help with these types of deals.