Canada: Leasehold Mortgages

Last Updated: March 15 2005

Article by Chris Huband, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Real Estate & Mortgage Financing - March 2005

In some cases, a borrower may not be the freehold owner of real property, but instead will hold its interest pursuant to a long term ground lease. Ground leases give rise to particular challenges for mortgage lenders.

Ground Leases

Land may be held under a ground lease in cases where an institutional or municipal owner is unwilling to relinquish its ownership interest in a key parcel of real estate, but may be willing to lease it. Under a typical ground lease, the tenant is solely responsible for all capital and operating costs and has the right and obligation to construct and maintain buildings on the property. The term of the lease may extend for a lengthy period of time, often as long as 99 years but more often for less than 50 years. In consideration for this, the tenant pays annual rent to the landlord that may be a fixed amount (usually subject to escalation based upon current land value) or a stated proportion of the income generated by the property or both. Ground tenants often have considerable freedom in granting subleases and mortgages of their leasehold interest.

Leasehold Mortgages

From the lender’s perspective, there are several unique issues that arise in financing such an interest. Obviously, the term of the loan must be safely within the existing term of the ground lease. If the term of the ground lease expires before the loan is fully repaid, the lender has no security. The lender may require the tenant to exercise any available options to extend the term and will wish to ensure that any outstanding options to renew are not personal to the tenant, but can be exercised (if necessary) by the lender or its assigns. The provisions of the ground lease must be carefully reviewed to identify any restrictions on financing or transfer (which might limit realization) and any limits imposed on the tenant’s ability to operate the property. The ground lease must be registered against title to the property so that the leasehold mortgage may be similarly registered. If the term of the lease, including renewals, exceeds 21 years in Ontario, the lender must be careful to ensure that the subdivision restrictions of the Planning Act (Ontario) have been complied with.

Charge by way of Sublease

The lender must be careful to ensure that it does not inadvertently become responsible for the obligations of the tenant under the ground lease. This is accomplished by providing that the leasehold mortgage is a charge by way of sublease, rather than by way of assignment. A charge by way of sublease is effected by the tenant reserving the last day of the term of the ground lease. The last day is usually held in trust by the tenant for the lender.

Risk of Tenant Default

Because the tenant remains responsible to the landlord for the performance of all of the tenant’s obligations under the ground lease, the lender is exposed to the risk that the tenant might default in the performance of one or more of those obligations, thereby entitling the landlord to terminate the ground lease. For a leasehold lender, the consequences of this would be fatal: its security would disappear. In some cases, the landlord may be prepared to agree that the leasehold mortgage will survive notwithstanding any termination of the ground lease. This effectively constitutes a mortgage of the landlord’s freehold interest and may be accomplished by registering a separate, usually non-recourse, mortgage against the freehold estate. Alternatively, the landlord may simply agree not to terminate the ground lease for any reason, including a tenant default, for so long as the leasehold mortgage remains outstanding.

Leasehold Mortgage Agreement

However, most landlords will not agree to subordinate their freehold interest to the leasehold mortgage. A more usual approach is for the parties, including the tenant, to enter into a leasehold mortgage agreement whereby the landlord agrees to give the lender notice of any default by the tenant and an opportunity to cure the default, often within an extended time frame. If the default is of an incurable nature (such as the bankruptcy of the tenant), the lender will usually negotiate the ability to obtain a new lease directly from the landlord upon the same terms as the former ground lease for the balance of its term. Although the ground lease may contain provisions contemplating such an arrangement, the lender will wish to ensure that it has privity of contract with the landlord, which can only be accomplished by a separate agreement. The tenant should be a party to the agreement as well because it may be necessary for the lender to enter onto the property in order to cure defaults.

Other Matters

The leasehold mortgage agreement typically also addresses several other matters. The lender will be concerned to establish the trigger point at which the lender becomes responsible for the obligations of the tenant under the lease in a default scenario. The lender will wish to ensure that this trigger is an event firmly within its control, such as the delivery of written notice to the landlord. The lender will also wish to ensure that, upon assuming responsibility for the tenant’s obligations, the lender does not thereby become burdened with liability for previous defaults by the tenant arising prior to the trigger point. Furthermore, the lender will want to provide that it is clearly released as soon as it disposes of the tenant’s interest in a realization. The leasehold mortgage agreement will also restrict the ability of the landlord to amend the ground lease or to consent to an assignment of the lease by the tenant without the lender’s consent, contain estoppel language with respect to the current status of the ground lease and include provisions designed to ensure that the agreement becomes binding on successors and assigns of both the lender and the landlord. If there is a renewal option still outstanding, the lender may require that it receive notice from the landlord if the option goes unexercised and be granted an opportunity to exercise it on behalf of the tenant. If the ground lease contains restrictions on transfer by the tenant, the leasehold mortgage agreement must permit the lender to assign the tenant’s interest under the ground lease in the course of realizing on its security without the necessity of obtaining the landlord’s consent.

Form of Security

With the exception of the leasehold mortgage agreement and the reservation of the last day of the term of the ground lease, the security for a leasehold mortgage loan is very similar to that for a freehold mortgage loan. In Ontario, the Land Registration Reform Act provides for certain implied covenants in mortgages of leasehold land, which will apply in the leasehold mortgage document unless they are specifically excluded. Unless there is a separate leasehold parcel for the tenant’s leasehold interest under the Land Titles Act (Ontario), leasehold mortgages are registered under Ontario’s electronic registration system, not in the familiar Charge/Mortgage form, but as notices of a charge of lease, to which the form of leasehold mortgage can be attached.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions