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
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.