assignment of lease vs leasehold mortgage

Leasehold Mortgage vs. Assignment of Lease

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Although leasehold mortgages and assignments of lease are both legal processes relating to property leases, they’re actually very different. A leasehold mortgage is a loan placed on a piece of leased land, usually used by developers for construction projects. An assignment of lease transfers an unexpired lease to someone else, who then takes over the rental payments.

A leasehold mortgage is a loan taken out on a piece of property that is owned by someone else, while an assignment of lease transfers the lease on a property to someone else.

Mortgage Leases and Leasehold Mortgages

Generally, when someone wants to purchase a property, that property is financed using a mortgage. For commercial property buyers, though, mortgage lending isn’t quite as straightforward. There are various types of commercial mortgages, and one of those is a leasehold mortgage .

With a leasehold mortgage, a commercial real estate investor can obtain financing for a building based on the land that person is leasing. Common in real estate development, this type of mortgage gives the developer the funds necessary to put a building on land that is leased, based on the assumption that once construction is finished it will begin generating the income necessary to make it worth it for the property owner.

Assignment of Lease

If you own a home and want to get rid of it, you must either bring in a renter or sell it to someone else. With a lease, though, you can turn over the lease to someone else, provided your landlord is OK with it. This is done through the use of an assignment of lease , which gets you out of an unexpired lease by letting you transfer it to someone else.

Unlike a leasehold mortgage, an assignment of lease is not only a process, but it’s also a title document that both parties must read and sign. This type of arrangement comes in handy if your business fails to become profitable and must close, yet you have a remaining lease on your space. It may also be an option if your business grows so quickly that you need a larger space and therefore must move before your lease expires.

Leasehold Mortgage Versus Lease Assignment

Although leasehold mortgages and lease assignments are different by nature, they also have something in common. They refer to various activities that can take place based on a lease . While leasehold mortgage financing requires taking out a loan, though, a lease assignment is merely transferring an agreement from one party to another.

One similarity between the two is that they both refer to leases, which means property owners may have a stake in the outcome. With a leasehold mortgage, the borrower must have permission to take out such a mortgage – a permission that is usually conveyed as part of a commercial ground lease . With an assignment of lease, the landlord must sign off on the transfer before it can be finalized.

Approvals for Leasehold Mortgages

Getting a leasehold mortgage isn’t just a matter of heading to a bank and asking. The borrower will need to be able to prove that he has the right to request this type of loan . Usually, this starts by looking at the lease and finding the section specific to mortgages on the leased property.

Most commercial ground leases will state that the lessee must provide written notice to the lessor of an impending request to obtain financing for the property. That notice should include contact information for the potential mortgage lender, and the lender should verify that the lease allows a tenant to borrow money from the type of lending institution the borrower has approached.

Approvals for Lease Assignments

A tenant can’t simply turn a lease over to someone else. Obviously, the landlord will have a say in the situation and likely will want to clear the new tenant before approving the transfer. The landlord’s permission is usually granted in the form of a legal document known as the License to Assign .

The landlord’s approval may not be the only thing you’ll need to secure before you can complete an assignment of lease. On your lease agreement, check the section called Alienation , which should detail circumstances in which your landlord can refuse to allow you to assign your lease to someone else. If you fail to go through the landlord approval process, your landlord could later revoke the lease assignment.

Defining a Ground Lease

Before you can establish a mortgage leasehold interest in a property, you first must have the rights to lease the space. Leasehold mortgages are most commonly seen with ground leases, which are commercial leases issued to a tenant who wants to develop property on a lot. The property owner permits the developer to erect a building on that land with the understanding that once development is complete, the land and all the improvements revert back to the owner of that land.

Property owners agree to leasehold mortgages because once development is complete, the owner can then sell the property at a profit. It’s a small price to pay to allow someone to lease the property during the construction phase in order to recoup some money at the end of it. However, it can be risky for the property owner if the person leasing the property stops paying the lease or the leasehold mortgage payment and there’s no one around to pay the rent.

Leasehold Mortgage Foreclosures

If you own a property and stop paying your mortgage, the bank will eventually foreclose. But if you stop making payments on your leasehold mortgage, things get a little more complicated. Someone else owns that property, and that person expects a lease to continue to be paid even if the loan goes bad.

A lender can foreclose on the borrower’s interest in a property , but that same lender likely won’t want to continue to make the rent on that property, even if the owner expects it. Since commercial leases can sometimes run for multiple years, this obligation is something a lender definitely needs to think about. It’s important that agreements be written in a way that the lender doesn’t expressly assume the lease in the event of a foreclosure.

Assignment of Lease Versus Subletting

If you think assignment of lease sounds a lot like subletting , you’re right. But there’s a very specific difference between the two. With an assignment of lease, you are stepping out of the situation and setting up a direct relationship between the new tenant and your previous landlord. With subletting, your relationship with your landlord continues, but you introduce a new relationship between you and a third-party tenant who now pays the rent.

While both processes require legal documentation, subletting puts the agreement between the original tenant and the person who will be staying in the rented property. As with an assignment of lease, though, you’ll need to make sure you have your landlord’s approval before the new person moves in. But neither assignment of lease nor subletting require that you involve a lender, as in the case of leasehold mortgage financing.

Liabilities of Assignments of Lease

As with any type of mortgage lease, when you have a lease on a property, the liability falls on you if you fail to make mortgage payments or you damage the building in some way. When you shift the lease via a legal document, though, this liability goes with it. This only applies if the landlord releases that liability , though, so it’s important to make sure that’s part of your documentation.

Although you may be able to escape liability for what the transferee does to the rental space, there’s one area where liability will probably be unavoidable. If your transferee exits the lease before your original term is up, your landlord will probably come right back to you to fix the issues. Your Assignment of Lease document should detail what will happen in this event, including your right to reoccupy the premises if you choose.

Benefits of a Ground Lease

You may have never heard of these ground leases before, but they’ve definitely happened all around you. Large chain retailers like Whole Foods and Starbucks use ground leases to build new locations on already-owned land, often in situations where they rest alongside other shops and restaurants in a retail strip.

Businesses often choose ground leases with leaseholder mortgages because they can access a property without having to make a considerable down payment. They simply need to obtain leasehold mortgage financing and they can start building. For larger corporations, this is as much a benefit as a slowly growing small business since it keeps capital free for them to spend on other expenses, such as building costs.

Subordinated Ground Lease

When a landlord agrees to a ground lease, often that means agreeing to take a subordinated position if the tenant defaults on her leasehold mortgage. This means your landlord is agreeing that if you don’t make your payments, the property itself acts as collateral. As a result, the landlord may increase rent payments for tenants in order to compensate for that risk.

An unsubordinated ground lease, on the other hand, accounts for any mortgage lease issues by stating that if you don’t pay your rent or your mortgage payments, the property owner takes a top role legally. You may have a tougher time getting a bank to agree to take a lower priority than the landlord and because of this inconvenience, generally, you’ll find the rent is lower to compensate for it.

Leasehold Improvements Versus Leasehold Mortgages

Another term that can be confused with leasehold mortgages is something called leasehold improvements , which can be done without the loan and subsequent mortgage leasehold interest involved in a leasehold mortgage. A leasehold improvement simply refers to adjustments a tenant makes to a property that apply specifically to the internal contents , such as paint, new flooring or upgraded lighting fixtures. This is different from the building improvements that are handled by a landlord and apply specifically to common areas, elevators and other nonrentable areas of a building.

Unlike leasehold mortgages, leasehold improvements don’t involve taking out a loan . The owner may provide a particular amount of money for such improvements, called a Tenant Improvement Allowance. Landlords may also be willing to discount rent or provide money through something called a Building Standard Allowance. In other cases, the landlord himself pays for the improvements in something called a Turnkey Job, which is generally done prior to move-in but can be done while you’re occupying the space, with sufficient notice each time before entering the unit.

Liabilities of Leasehold Mortgages

Before taking a mortgage leasehold interest stake in a property, a lessee will also want to reduce his own liability. If there is a casualty during the time this loan is in place, the developer may find it difficult to get access to the insurance proceeds necessary to repair any damages that were suffered. For that reason, many property owners will employ an escrow agent to hold the funds so that they’re guaranteed to only be used for damage-related costs.

If there’s an injury or another incident on your property during the time you hold a lease, local laws will determine where responsibility falls. Landlord-tenant law covers such a situation, and often landlords have insurance to protect against these types of claims. Although you, as the developer, have a responsibility to keep your worksite safe, the landlord is responsible for ensuring common areas are maintained and proper signage is posted when a hazard exists on site.

USLegal: Leasehold Mortgage Law and Legal Definition
JDSupra: When a Lender Forecloses on a Leasehold Interest
White and Williams LLP: Leasehold Financing: Key Issues for Mortgage Lenders
What Is A Ground Lease? | Massimo CRE Coach
LawDepot: What Type of Leases Do You Have?
Sherin and Lodgen: Why a Leasehold Mortgage?
FindLaw: Liability for Tenant Injuries and Insurance for Landlords

Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.

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Assignment of Lease vs. Mortgage of Lease

This article may only be applicable in certain jurisdictions.

When lenders consider their real property security options, their analysis often goes beyond simply taking a mortgage from a debtor who owns real estate. A debtor's interest in real property leases (whether as landlord or tenant) means a lender often obtains either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender's security in the underlying debtor asset.

Assignment of Lease

In cases where the debtor owns real property but does not occupy it, the revenue stream from third party leases is a significant asset that should be secured. Although most mortgage standard charge terms include at least a brief paragraph related to assignment of leases, they do not provide the benefit of the more fulsome provisions typically contained in a stand alone specific Assignment of Lease (in cases where there may be a significant tenant) or a general Assignment of Lease (securing all present and future leases without reference to a specific tenant).

The debtor's interest as landlord is secured by registration against title to the debtor's real property, typically immediately following the registration of the mortgage of land. It should be noted that in order to register a specific Assignment of Lease, there first requires the registration of a Notice of Lease in respect of the lease that is being specifically assigned. The Assignment of Lease also has a personal property component that cannot be overlooked. The rents and leases that are secured by the Assignment of Lease fall within the definition of personal property under the personal property security legislation; and as such require the registration of a financing statement against the debtor.

An Assignment of Lease document includes certain generally accepted provisions.

The debtor assigns to the lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.

The debtor typically covenants to not collect rent more than one month in advance (to ensure that the normal revenue stream is available to the lender on enforcement) and not amend any material terms of the leases without the lender's approval. In the case of a specific Assignment of Lease, it is prudent to also obtain similar covenants from the tenant itself and an acknowledgement that the tenant will attorn to the Lender in the event of default by the debtor.

The debtor is permitted to continue to collect rent according to the terms of the leases until an event of default occurs pursuant to the mortgage of land, after which the Lender may give notice to the tenants to pay all future rents to the lender directly.

Mortgage of Lease

In cases where the debtor does not own real estate but rents space instead, the right to occupy the premises may be a key asset of the debtor that is secured. Although it is typical that a general security agreement includes a reference to leasehold interests in the description of the charged collateral, the general security agreement does not provide the benefit of the more complete language in a stand alone specific Mortgage of Lease document.

The debtor's interest as tenant is secured by registration against title to the debtor's leasehold interest in the real property. This requires the prior registration of a Notice of Lease in respect of the lease that is being secured.

It should be noted that if there is a real property mortgage on title granted by the owner/landlord to another lender prior to the lease, and if the tenant/debtor or tenant's lender has not obtained a non-disturbance agreement from the owner/landlord, the Mortgage of Lease will be no better security than the lease itself (i.e., subject to being terminated at the option of the prior mortgagee in the event of default under the real property mortgage). Most leases will contain a prohibition against mortgaging the lease, so it will be necessary to obtain the landlord's consent to a Mortgage of Lease.

A Mortgage of Lease document typically contains some basic standard provisions.

As in a mortgage of land, the Mortgage of Lease specifies a principal amount, interest rate, payment dates, and contains charging language whereby the debtor's leasehold interest is security for payment of the principal and interest.

Similarly, in the event of default, the lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

The debtor covenants to not pay rent more than one month in advance, to not amend any material terms of the leases without the lender's approval, to not terminate or surrender the term of the lease and to hold possession of the premises in trust for the lender.

Most lender mortgage standard charge terms contain flexible language that contemplates use of the terms for both cases where the chargor owns a freehold interest in the property or a leasehold interest in the property.

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Leasehold Mortgage | Practical Law

Leasehold Mortgage

Practical law glossary item 1-507-0619 (approx. 3 pages).

Construct new improvements on the leased land.
Renovate existing improvements on the leased land.
Residential property that is income producing, such as multi-family housing.
Office buildings or office parks.
Shopping centers.
Manufacturing facilities.

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Mortgage and Financing
Understanding Leasehold Mortgages: Exploring Definition and Mechanisms

Leasehold mortgages are a popular form of financing for individuals looking to purchase a property with a leasehold agreement. In this article, we will explore the basics of leasehold mortgages, their benefits and drawbacks, important considerations, leasehold reform and regulations, how to obtain a leasehold mortgage, and provide answers to frequently asked questions.

The Basics of Leasehold Mortgages

Benefits and drawbacks of leasehold mortgages, important considerations for leasehold mortgages, understanding leasehold reform and regulations, how to obtain a leasehold mortgage, 1. what is a leasehold mortgage, 2. how does a leasehold mortgage differ from a freehold mortgage, 3. can i get a leasehold mortgage on any property, 4. are leasehold mortgages more expensive than freehold mortgages, 5. what happens to my leasehold mortgage if the lease expires.

A leasehold mortgage is a type of mortgage where the borrower owns the property but not the land it stands on. The borrower enters into a lease agreement with the landowner, usually for a long-term period, and pays rent for the use of the land. The leasehold mortgage is secured against the leasehold interest in the property.

assignment of lease vs leasehold mortgage

Leasehold mortgages offer several advantages, such as lower purchase prices compared to freehold properties, potentially lower monthly mortgage payments, and the ability to live in desirable locations. However, it is important to consider drawbacks, including ongoing leasehold costs, potential restrictions imposed by the landowner, and the risk of lease expiration.

When considering a leasehold mortgage, it is essential to evaluate various factors. These include the length of the lease, the ground rent and service charges, any restrictions on alterations or subletting, and the financial stability of the landowner. It is advisable to seek professional advice before committing to a leasehold mortgage.

Leasehold reform and regulations aim to protect the rights and interests of leasehold property owners. In recent years, there have been significant changes in legislation to address issues such as unfair ground rents and lease extensions. It is crucial to stay informed about the latest leasehold reform and regulations to make informed decisions.

Obtaining a leasehold mortgage follows a similar process to obtaining a mortgage for a freehold property. It involves researching lenders who offer leasehold mortgages, comparing interest rates and terms, completing a mortgage application, and providing the necessary documentation. A thorough property valuation and legal checks are also conducted before finalizing the mortgage.

Leasehold mortgages can be an attractive option for property buyers, but they require careful consideration and understanding of the leasehold agreement. By learning about the basics of leasehold mortgages, considering the benefits and drawbacks, understanding important considerations, staying updated on leasehold reform and regulations, and following the necessary steps to obtain a leasehold mortgage, individuals can make informed decisions and navigate the leasehold property market confidently.

Frequently Asked Questions

A leasehold mortgage is a type of mortgage where the borrower owns the property but not the land it stands on. The borrower enters into a lease agreement with the landowner and pays rent for the use of the land.

A leasehold mortgage differs from a freehold mortgage in that the borrower only owns the property and not the land. In a freehold mortgage, the borrower owns both the property and the land it stands on.

Leasehold mortgages are typically available for properties with leasehold agreements. However, it is important to check with lenders as certain properties may have restrictions or may not be eligible for leasehold mortgages.

Leasehold mortgages can have different costs compared to freehold mortgages. While the purchase price of a leasehold property may be lower, there may be ongoing leasehold costs, such as ground rent and service charges, that need to be considered.

If the lease on your property expires, you may no longer have the right to occupy the property. It is important to understand the terms of the lease and consider options for lease extension or enfranchisement before the lease expiration.

If you want to discover more articles similar to Understanding Leasehold Mortgages: Exploring Definition and Mechanisms , you can visit the Mortgage and Financing category.

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What Happens When a Tenant Wants the Right to Mortgage Its Lease? Five Basic Legal Points for Landlords and Tenants

While leasehold mortgages have been around for a long time, in recent years the financial markets have made them more attractive to retailers as a way to finance expansion. When tenants are in a strong bargaining position during lease negotiations, they often obtain the absolute right to mortgage their leasehold interest, and sometimes, in the context of ground leases or subdivided pad leases, have the ability to mortgage the landlord's fee as well. When the tenant is in a weaker position, the landlord often bars any mortgage of the tenant's leasehold altogether.

However, more and more, we have been seeing tenants with a bargaining position somewhere in the middle, especially chain tenants, negotiate in advance for leasehold mortgage provisions to assist in their future financing efforts.

Landlords typically consider these provisions both as an incentive for the tenant to sign the lease and as a means of promoting the tenant's future financial viability.

Chain tenants, especially those growing quickly, need to have leasehold mortgage clauses in place in their leases. The tenant's bargaining position is usually at its peak at lease signing and it runs the risk of one or more landlords extracting costly concessions or simply refusing to consent when the tenant tries to finance its leases throughout the chain at a later date. Without the leasehold mortgage provisions already in place, separate negotiations with each landlord will impede a chain tenant's efforts to finance using its leases as collateral.

In this article we will identify and address five major legal issues that have a significant impact on landlords and tenants when they negotiate leasehold mortgage provisions in leases.

Making Sure the Tenant's Financing is "Bona Fide"

Leases commonly restrict leasehold financing to institutional lenders and have a definition of "bona fide financing," generally to avoid the use of a leasehold mortgage to avoid assignment restrictions. In addition, landlords often prefer that their chain tenants' leasehold financing be done for more than just one or two stores, whether on a chainwide basis or for all stores under a particular trade name or in a particular geographic area or with respect to a certain minimum number of stores.

Does the Lease Survive Foreclosure?

There are three basic items the lender needs to protect its mortgage interest. First, the lender will typically want to record a memorandum of the lease. Second, the tenant's lender also needs a nondisturbance agreement providing that the lease remains in place if the landlord's lender forecloses or if the tenant's lender forecloses and succeeds to the tenant's interest. Finally, many lenders also ask that if tenant goes bankrupt and the lease is terminated, the landlord will enter into a new lease directly with the lender on the same terms as the tenant's lease.

Notices and Rights to Cure

The tenant's leasehold lenders usually want notice of tenant's defaults and the option to cure a tenant's default beyond the tenant's cure period so that the lender can protect its collateral. Landlords may want to consider permitting such protections, provided there are appropriate time frames for the cure, taking both the tenant's cure period and the lender's cure period together. A related issue is that lenders typically want the landlord to agree not to accept a voluntary surrender of the lease from the tenant without the lender's consent.

Lender's Right to Assign the Lease

Once the lender begins its foreclosure process, it needs to dispose of the lease - after all, an institutional lender does not typically want to operate a tenant's business.

Unrestricted assignment can be problematic for landlords, especially for shopping center landlords, for whom tenant mix, use clauses contained in the lease, protection of other tenants' exclusive use clauses, and restriction of noxious uses are critical issues. In addition, all landlords are concerned with the financial viability of the potential assignee.

The landlord should consider making it easier for the lender to assign - the landlord does not want to have the lender operate the premises for any extended period of time, either. But at the very least, the lender should have the same right to assign as the original tenant had, and subject to all of the terms and conditions of the lease, including exclusives and use restrictions. The lender, however, will need to be released from all liabilities and obligations under the lease accruing after assignment and the lender will also need to retain any rent premium or other consideration paid by the assignee - after all, these monies are the lender's collateral.

When Might the Landlord Want to Subordinate Its Fee Interest to the Lender?

Often, leasehold lenders want to bind the fee or be superior to the interests of the landlord and its lenders. Landlords rarely agree to subordinate their fee interest to the tenant's mortgage. Occasionally, subordination may be agreed to in a standalone lease or on a subdivided pad where the landlord/fee owner would otherwise take out a loan itself to build the tenant's building or pay a tenant improvement allowance but the tenant can more cheaply obtain the same loan. In this case, the landlord will want the right to cure any defaults by the tenant under the loan documents and have the tenant's default under its loan documents also be a default under the lease. Subordination is nevertheless a rare occurrence and leasehold lenders typically accept this limitation.

The foregoing are basic points for landlords and tenants to consider when negotiating leasehold mortgage provisions. Of course, there are many additional and critical details and legal issues that will need to be addressed when a landlord and tenant agree on a leasehold provision to be added to a lease. The facts and circumstances of each transaction must be considered as well.

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Spotlight on security documents: Assignment of Lease vs. Mortgage of Lease

When Lenders consider their real property security options, their analysis should go beyond simply taking a mortgage from a debtor who owns real estate. A debtor’s interest in real property leases (whether as landlord or tenant) means a Lender should obtain either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender’s security in the underlying debtor asset.

Assignment of Lease

The debtor’s interest as landlord is secured by registration against title to the debtor’s real property, typically immediately following the registration of the mortgage of land. It should be noted that in order to register a specific Assignment of Lease, there first requires the registration of a Notice of Lease in respect of the lease that is being specifically assigned. The Assignment of Lease also has a personal property component that cannot be overlooked. The rents and leases that are secured by the Assignment of Lease fall within the definition of personal property under the personal property security legislation; and as such require the registration of a financing statement against the debtor.

An Assignment of Lease document includes certain generally accepted provisions.

The debtor assigns to the Lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.

The debtor covenants to not collect rent more than one month in advance (to ensure that the normal revenue stream is available to the Lender on enforcement) and to not amend any material terms of the leases without the Lender’s approval. In the case of a specific Assignment of Lease, it is prudent to also obtain similar covenants from the tenant itself and an acknowledgement that the tenant will attorn to the Lender in the event of default by the debtor.

Mortgage of Lease

In cases where the debtor does not own real estate but rents space instead, the right to occupy the premises may be a key asset of the debtor that should be secured. Although it is typical that a general security agreement includes a reference to leasehold interests in the description of the charged collateral, the general security agreement does not provide the benefit of the more complete language in a stand alone specific Mortgage of Lease document.

The debtor’s interest as tenant is secured by registration against title to the debtor’s leasehold interest in the real property. This requires the prior registration of a Notice of Lease in respect of the lease that is being secured.

It should be noted that if there is a real property mortgage on title granted by the owner/landlord to another lender prior to the lease, and if the tenant/debtor or tenant’s lender has not obtained a non-disturbance agreement from the owner/landlord, the Mortgage of Lease will be no better security than the lease itself (i.e., subject to being terminated at the option of the prior mortgagee in the event of default under the real property mortgage). Most leases will contain a prohibition against mortgaging the lease, so it will be necessary to obtain the landlord’s consent to a Mortgage of Lease in those cases.

A Mortgage of Lease document typically contains some basic provisions.

As in a mortgage of land, the Mortgage of Lease specifies a principal amount, interest rate, payment dates, and contains charging language whereby the debtor’s leasehold interest is security for payment of the principal and interest.

Similarly, in the event of default, the Lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

The debtor covenants to not pay rent more than one month in advance, to not amend any material terms of the leases without the Lender’s approval, to not terminate or surrender the term of the lease and to hold possession of the premises in trust for the Lender.

Most Lender mortgage standard charge terms contain flexible language that contemplates the use of the terms for both cases where the chargor owns a freehold interest in the property or a leasehold interest in the property.

So please consider an Assignment of Lease or Mortgage of Lease as part of your security package. We would be pleased to assist you with these documents.

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Navigating the assignment of a residential lease

A landlord can assign his leases to a new buyer of his building. Likewise, a tenant may be able to assign his lease if he needs to relocate. Find out how to assign your lease and what you can do to protect yourself when doing so.

by Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does...

Assignment of lease by the tenant

Assignment of lease vs. sublease, assignment of lease by the landlord.

As a tenant, you may want to get out of your residential lease without paying the remaining rent. Likewise, if you're a landlord and sell your rental property, the buyer must now collect rent from the tenants, who may have no idea you sold the property. In both situations, assignment of a lease with a release for the tenant and assignment of leases with notice by the landlord accomplish these goals.

A pair of glasses, a blue ballpoint pen, and a calculator resting on a residential lease agreement

If you're the tenant and want to leave before the end of your lease term, you may be able to assign your lease to a third party if the landlord doesn't let you out of the lease. The third party then becomes the new tenant, who is bound by the terms of the original lease and pays rent to the landlord.

Most often, the lease won't permit assignment without the landlord's approval, but leases often state that the landlord cannot unreasonably withhold consent. As long as you produce a tenant who's shown a history of payment under prior leases and has been a model tenant, a landlord should consent to assignment.

The assignment of lease form should include places for the tenant-assignor, the new tenant-assignee, and the landlord to sign. If the master lease allows assignment, then the tenant doesn't need the landlord's permission; the tenant can sign an assignment of lease agreement without the landlord's signature.

If the landlord allows an assignment of the lease, you, as the tenant, also want him to sign a release stating that you're not responsible for the new tenant's failure to pay or for any damage she causes. Without such a release, you may still be liable for both.

When you, as the tenant, assign the lease, you sign an agreement that either reads “Assignment of Lease," “Lease Assumption Agreement," or “Assignment and Assumption Agreement." An assumption of the lease means that the new tenant assumes your obligations, such as paying rent and keeping the apartment in good condition.

An assignment of a lease transfers the tenant's entire rights in the property to a third party. With a sublease, on the other hand, the tenant transfers only a portion of the remaining lease. For example, if the original tenant has six months remaining on his lease and he gives the entire six months to a third party, the tenant is permanently assigning his rights to live on the property to the third party. If, however, the tenant allows that third party to stay at the premises for only three months, and the tenant intends to return after three months, he is subleasing the premises.

A landlord can assign the right to collect rent to someone who has purchased the property. An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords protection to the buyer so he can collect rent.

An assignment of leases by the landlord to the buyer is meaningless if tenants aren't aware the landlord sold the property, which is why it's important for the assignor-landlord to give tenants proper notice. A notice of assignment of lease, which is a form signed by both the assignor-landlord and the assignee, or new landlord, is one way to give notice. Another way is to send a letter on the landlord's letterhead. Either way, the notice must include the new landlord's address and how rent is to be paid.

Both landlords and tenants who become assignors should sign a formal assignment of lease agreement, which an online service provider can prepare for you. If you're the tenant who has assigned your lease, try to get a release or you'll still be liable to the landlord. If you're the landlord, make sure you can count on the new tenant to pay the rent before you release the primary tenant from his obligations under the lease.

Assignment Of Leases And Rents: Definition & Sample

Jump to section, what is an assignment of leases and rents.

The assignment of leases and rents, also known as the assignment of leases rents and profits, is a legal document that gives a mortgage lender right to any future profits that may come from leases and rents when a property owner defaults on their loan. This document is usually attached to a mortgage loan agreement.

Assignment of leases and rents allows lenders to a degree of financial protection in case a loan default occurs. This document is an agreement made between a borrower and a lender of mortgage loans. It often details an exact amount the lender will be entitled to if a default happens.

Common Sections in Assignments Of Leases And Rents

Below is a list of common sections included in Assignments Of Leases And Rents. These sections are linked to the below sample agreement for you to explore.

Assignment Of Leases And Rents Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.9 10 d368735dex109.htm ASSIGNMENT OF LEASES AND RENTS , Viewed October 4, 2021, View Source on SEC .

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Leasehold Financing: Key Issues for Mortgage Lenders

When entering into a long-term ground lease, one of the ground lessee’s principal concerns is assuring that its leasehold interest in the property is “financeable.” [1] A mortgage lender providing financing to the holder of a leasehold interest needs to confirm the ground lease contains certain key features in order to protect its lien position during the term of the loan and maximize the likelihood of a successful refinancing.

Fee Mortgages

The prospective leasehold mortgagee should confirm that there is nothing in the ground lease that would cause the ground lessee’s interest and the leasehold mortgage to become subordinate or inferior to a subsequent mortgage granted by the ground lessor on its fee simple estate. Before closing on the leasehold financing, a lender should also confirm that no mortgage on the ground lessor’s estate already exists.

Assignability/Mortgagability

The ground lessee’s interest should be freely assignable such that the ground lessor does not have any approval rights over (i) the granting of the mortgage by the ground lessee, (ii) the realization on the leasehold by the leasehold mortgagee in connection with an action to foreclose the mortgage or (iii) the sale of the leasehold by the mortgage lender (or its designee) to a third party buyer after the foreclosure is complete.

Many ground leases require the ground lessee to provide written notice to the ground lessor of the granting of a mortgage and the contact information of the mortgagee (which is certainly fine, and indeed a good idea), but the leasehold mortgagee should be wary of provisions that require the ground lessor’s “consent” to the mortgaging and/or assignment of the leasehold. It is also important to review the ground lease to see if it provides that only a certain “type” of mortgagee may qualify as a “permitted” or “recognized” lender. That is, some ground leases state that only an “institutional lender” or “financial institution” may be a recognized and permitted leasehold lender. These definitions must be reviewed (and sometimes revised) to make sure they are not overly narrow or restrictive. In addition to making sure these definitions do not unnecessarily exclude certain types of financing sources, it is not uncommon to see the “leasehold mortgagee protections” in ground leases being “extended” to mezzanine lenders and preferred equity providers to facilitate financings that involve multi-tiered capital stacks.

Notice of Default and Opportunity to Cure

It is critical that the ground lease contain provisions requiring the ground lessor to provide the leasehold mortgagee with a copy of any notice of default sent to the ground lessee (these notices should be provided simultaneously) and an independent opportunity for the leasehold mortgagee to cure the ground lessee’s default. The exact number of “extra” days afforded the mortgagee to effect a cure (i) for a monetary default (five or ten business days beyond what is afforded the ground lessee is not uncommon) and (ii) for a non-monetary default (30 to 60 days beyond what is afforded the ground lessee is also not uncommon, and sometimes, depending on the circumstances, such additional time as may reasonably be necessary to actually obtain control of the leasehold property), is another important issue to be aware of when reviewing the ground lease.

The right to obtain a “new lease” from the ground lessor in the event the ground lease is ever terminated, including being rejected in a bankruptcy proceeding, is also a key element of a “financeable” ground lease. The ground lessor will often require the mortgage lender to elect or exercise its right to obtain a new lease within an agreed upon time frame after termination of the lease (30 or 60 days is not unusual) and to cure defaults committed by the prior ground lessee (to the extent such defaults are reasonably curable) before the leasehold mortgagee can earn the right to obtain a new lease and salvage its investment.

Modifications to the Ground Lease

The ground lessor and the ground lessee should not be permitted to amend, modify, or agree to cancel the ground lease without the leasehold mortgagee’s prior written consent. Without a lender consent right or override in place, the two parties to the ground lease would be free to negatively impact the lender’s collateral through an amendment to the ground lease and/or even cause the collateral to disappear if the ground lease were to be cancelled.

The term of the ground lease should not be overlooked. A ground lease with a short period of time remaining (five years, for example) or which contains extension options subject to material pre-conditions is problematic and can negatively impact (or completely eviscerate) the refinancability of a lender’s position. For an interest-only financing with a substantial balloon payment at maturity, it is, for example, generally recognized that a remaining term of at least 20 years beyond the upcoming maturity date is required in order to maximize refinancability.

Insurance Proceeds/Condemnation Awards

The interplay between the insurance and condemnation provisions of the ground lease, on one hand, and the leasehold mortgage, on the other hand, must be reconciled. From the mortgage lender’s perspective, it is important that in the event of a casualty and/or condemnation the proceeds and/or award be used to repair and restore the affected property or be available to pay off the leasehold mortgage. It is important for a mortgage lender to have maximum involvement and control in obtaining and deploying these monies, and it should be made as clear as possible that the provisions of the security instrument (whether mortgage, deed of trust, or deed to secure debt) control over conflicting provisions in the ground lease.

Memorandum of Ground Lease

Although rarely a controversial point, the ground lessor and the ground lessee should be sure to record a memorandum of the ground lease in the land records to register the tenant’s interest of record and facilitate the leasehold mortgage financing when it comes time to record the applicable security instrument and secure title insurance.

It is not unusual for ground leases (particularly older ones) to be missing at least some of the key points which make the ground lessee’s interest useable for financing purposes. In these situations, the parties often agree to amend or supplement the existing ground lease by adding or refining the missing concept(s) through a ground lessor estoppel and/or amendment to the lease. Such a document can also serve to provide important current information in the “estoppel” segment for the benefit of the prospective mortgage lender, i.e. , providing confirmation from the ground lessor that (i) no default exists under the ground lease, (ii) the ground lessor has not encumbered its fee simple interest, and (iii) the lease has not been amended, except as expressly described in the agreement.

Ground lease financing is complex and care must be taken to review the ground lease to confirm that the mortgage lender has the full list of “protections” for its position during the term of the loan and to maximize the likelihood of a successful take out of its loan at maturity.

If you have any questions or comments, please contact Timothy Davis (215.864.6829; davist@whiteandwilliams.com ) or William Johnston (215.864.6341; johnstonw@whiteandwilliams.com ).

[1] For purposes of this discussion, this Client Alert assumes that the mortgage lender’s lien will not also encumber the ground lessor’s fee simple interest.

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Key Points: Financing Leasehold Interests in Real Estate

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Merely adding the word “leasehold” to your standard mortgage form does not create an effective leasehold mortgage.
Allow the tenant to grant a leasehold mortgage?
Have a term longer than the loan?
If not, have extension options the lender may utilize?
Have purchase options the lender may utilize?
Have predictable rent?
Check the title to the fee estate (landlord/owner) and not just the leasehold estate (tenant/mortgagor). Assure the lease or a memorandum has been recorded.
If the landlord’s/owner’s interest is subject to a mortgage, obtain a non-disturbance agreement which specifically addresses the leasehold mortgage situation.
receive notice of the tenant/borrower’s default;
cure a tenant default and receive extra time to do so;
obtain possession of the premises to cure; and
receive a waiver of non-curable defaults (or a new lease).
The potential responses to a bankruptcy filing by the tenant/borrower and by the landlord must be addressed – in the leasehold mortgage.
Consider whether restrictive use provisions in the lease will diminish your collateral value (the lease) if you are forced to address a loan default.
A leasehold mortgage can be enforced through foreclosure…but consider additional remedies: the granting of a new lease or the assignment of the lease to a new tenant. The lease should have a “no merger” clause.
Address the lender’s right to enforce the lease, consent to amendments, receive insurance proceeds, and obtain possession.
Do you really want to take on the complexity of mortgaging a sublease?

Timothy G. Dietrich

(610) 898-7154
[email protected]

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Best Practices: Obtaining Assignment of Leases and Landlord Waivers under SOP 50 10 5(J)

May 16, 2018
Michelle Sergent Kaas

SOP 50 10 5(J), Subpart B, Chapter 4 provides the following:

When a substantial portion of the loan proceeds are to be used for leasehold improvements or a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate, the Lender should obtain:
A term including renewal options that equals or exceeds the term of the loan; and
A requirement that the lessor provide a 60-day written notice of default to the Lender with option to cure the default; and
A Landlord’s Waiver. The Landlord’s Waiver gives the Lender access to the leased premises and facilitates the liquidation of the collateral on the borrower’s premises and should be obtained for all SBA loans with tangible personal property as collateral.

Obtaining an assignment of lease and a sufficient landlord waiver that meets SBA requirements can be a difficult task. The borrower loses bargaining power once a lease is signed, as the landlord has little incentive to negotiate. If possible, the borrower and/or the lender should negotiate the landlord waiver when the borrower is negotiating the lease. This will allow the parties an even playing field upon which to negotiate. Should the parties not come to an agreement, then the borrower can look elsewhere for an acceptable lease.

The lender and the landlord have two competing interests when it comes to assignment of leases and landlord waivers. The lender needs to protect its collateral, to obtain access to the premises and to have time to remove its collateral upon default and/or termination of the lease. The landlord, on the other hand, needs to remove the collateral as soon as possible in order to obtain a new tenant who will start paying rent. Striking a balance between these competing interests is often challenging and time consuming.

If a landlord will not allow a blanket assignment of lease, then try to obtain a provision allowing an assignment upon certain criteria and/or approval of the landlord. The landlord will more likely allow this if he has the power to approve the assignment. If the landlord does not provide the lender with an opportunity to cure a borrower default under the lease, then propose language allowing the lender to cure the default within the same cure periods as set forth in the lease. If the lender is subject to the same time periods as the borrower/ tenant, the landlord may be more likely to allow the lender the opportunity to cure the default. If the landlord will not allow the lender 60 days to remove the collateral, then the lender can propose the payment of rent during this time period. If the landlord is getting paid rent during this period, he may be more likely to give the lender the time it needs to remove the collateral.

The SBA has acknowledged the difficulties of obtaining assignment of leases and landlord waivers in the new SOP. SOP 50 10 5(J), Subpart B, Chapter 4 now provides that “[i]f the Lender is unable to obtain the assignment of lease or landlord’s waiver Lender must document its file with the attempt to obtain the assignment and the landlord’s reason(s) for not providing it.” Should you encounter a difficult landlord, make your best attempts to obtain the assignment of lease and sufficient landlord waiver. If you are not able to obtain everything requested from the landlord, then follow prudent lending practices and document your file accordingly.

For more information on assignment of leases and landlord waivers, contact Michelle Sergent Kaas at [email protected] or at 267.470.1167.

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If it looks like a Ground Lease… What makes a Lease a “Ground Lease” & Why it Matters

If you want to know the legal definition of a "ground lease" you are likely to find it defined in source material by reference to set of common characteristics associated with ground leases. At the risk of stating the obvious, the key feature of a ground lease that distinguishes it from other leases is that it’s a lease of ground, or as real estate lawyers are fond of saying: the "dirt." However, this fact is not necessarily significant for purposes of determining financeability, transferability and other features that affect the value of the ground lease. The characteristics of ground leases include:

Long Term (generally 99 years) – Since the tenant is expected to invest substantial sums in improving the property, the lease term must be long enough to obtain financing, amortize the costs of the improvements and realize a return.
Construction – Ground leases usually involve development of new improvements (which may include demolition of existing structure) or substantial rehabilitation of improvements.
Triple Net – All operating expenses, property maintenance and repair are the responsibility of the tenant, even those obligations that are sometimes borne by the landlord in other "triple-net" leases such as the obligation to make structural repairs and capital improvements and the obligation to rebuild in the event of a casualty.
Financeability – In order to pay for the construction of the improvements, the tenant needs to finance its leasehold interest in the property. Therefore, ground leases must contain provisions that permit the tenant to obtain one or more leasehold mortgages and special leasehold mortgagee protections so that the lender can protect its collateral (e.g. right to receive notice of and an opportunity to cure any defaults by the tenant and receive a new lease if the lease should terminate).
Building Ownership – Given that the tenant is controlling the property during the extended period of the ground lease, the tenant’s position is often considered quasi "ownership" during the term. For this reason, ground leases contain fewer restrictions on assignment and generally provide latitude to the tenant in dealing with the property, such as the right to make alterations. Sometimes a ground lease provides that the building is owned by the tenant during the term but ownership reverts to the landlord when the term of the lease ends.

In an atypical ground lease, the tenant’s objective is to create a valuable income producing asset that can be financed and sold, much the same way is if it owned the property outright. The landlord’s objective is to achieve a predictable secure stream of income without assuming any development risk of operational responsibilities. These objectives have informed the characteristics of ground leases. Many if not most of the objectives of a ground lease can be realized without including the land in the leased premises. For example, nothing prevents a landlord and a tenant from entering into a lease of a building for an extended term whereby the tenant agrees to perform substantial renovations and then operate the building for the production of income while paying all of the expenses of operating the property, including making any required capital improvements. Such a lease can include virtually all of the characteristics of a ground lease, which should make the lease financeable and transferable in the same way as a ground lease. On the other hand, a lease of land can be stripped of the distinguishing features of a ground lease. For example, many ground leases place strict limits on the amount of floor area that may be included in the project, with the landlord controlling all unused development rights. Some ground leases also place limitations on the tenant’s right to transfer and to perform certain types of alterations. The lease, however, remains a "ground lease" because it covers the land.

Why should it matter whether a lease is a "ground lease"?

This issue was at the heart of the dispute in a recent New York court battle entitled Little Cherry, LLC vs. Cherry Street owner, LLC, JDS Development LLC and Michael Stern (NYSCEF Doc. No. [NYSCEF] 123, Decision and Order [Mot. Seq. Nos. 002, 003].) a case that has received wide attention and in which the plaintiff, a ground lessee, was represented by Herrick, Feinstein LLP.

The critical issue in Little Cherry was whether Little Cherry, the tenant under a 49-year lease was a "party-in-interest" under the New York City Zoning Resolution with the right to prevent the fee owner of the leased property and the owner of a contiguous parcel from merging their respective zoning lots and effecting a transfer of unused development rights in connection with that merger.

The Zoning Resolution limits the buildable area of every "zoning lot" to a specified floor area ratio based on the size of the lot and its zoning district. The Zoning Resolution provides a mechanism known as a zoning lot merger, which permits the combination of zoning lots into a single larger lot, and the allocation of combined unused development rights (sometimes called "air-rights") between or among the parcels in the combined zoning lot by way of a zoning lot development agreement. By adding development rights, the recipient lot increases its allowable floor area ratio, which means the owner of that lot may construct a larger building than that which would otherwise be permitted. Thus, where an existing building on one of the contiguous lots does not completely utilize the allowable floor area, a zoning lot merger could permit the developer of the contiguous lot to include that floor area in its own development.

Parties wishing to combine zoning lots, must first obtain the consent of all "parties-in-interest", which may be evidenced by execution of the declaration establishing the combined zoning lot (called a declaration of zoning lot restrictions, herein a "Declaration") or a waiver of that party’s right to do so.

Under the Zoning Resolution, "parties in interest" are limited to (i) the fee owner of the land covered by the Declaration; (ii) the holder of a recorded interest in land which would be superior to the Declaration and which could result in such holder obtaining possession of the land; (iii) the holder of a recorded interest in all or part of thereof which would be adversely affected by the Declaration; and (iv) the holder of an unrecorded interest that would be superior to and adversely affected the Declaration which would be disclosed by a physical inspection of the land.

Accordingly, under the Zoning Resolution even one who leases a building for a term of 150 years and is provided with every imaginable indication of ownership is not a party-in-interest under the Zoning Resolution as it is missing the crucial element of having an interest in the land. (Space tenants were specifically excluded from the definition of parties in interest in the New York Court of Appeals case of Macmillan Inc. v CF Lex Assocs ., 56 N.Y.2d 386.)

Little Cherry involved property owned by Two Bridgeset Housing Development Fund Company and its affiliate (collectively, the "HDFC Parties") which had been designated by New York City to develop the Two Bridges neighborhood under a plan for urban renewal. One of the parcels involved was leased to Little Cherry under a 49-year lease. For purposes of this discussion, the relevant history involves the attempt by the HFDC Parties and the owner of an adjacent zoning lot, Cherry Street Owner and its affiliate ("Developers"), to combine the zoning lots without Little Cherry’s consent, based on the claim that Little Cherry was not a party-in-interest. Little Cherry opposed the development (as did the Two Bridges community who continue to oppose it) on a number of grounds, not the least of which was the proposed construction of a skyriser with a significant cantilever directly over the leased property. That triggered a lawsuit by Little Cherry for a declaratory judgment that it was a party-in-interest and that the zoning lot merger could not proceed without its consent.

The Lease was triple net (including the obligation to rebuild in the event of a casualty) and contained many traditional ground lease provisions including the obligation to construct a building and the right to finance the leasehold with leasehold mortgagee protections. None of these facts were dispositive in the case. Rather, it was the definition of the "Leased Space" that carried the day and landed a valuable victory for Little Cherry. The "Leased Space" was comprised of two components: (i) the "Store Building", i.e, the building constructed on the land; and (ii) the "Store Site", which was defined only by reference to a hand drawn map identifying the general area where the store was to be constructed. However, given the two-pronged definition, as a matter of contract interpretation, the "Store Site" could not mean anything other than land.

One thing that the Developers got right in the Little Cherry case is that nomenclature should have no bearing on the rights of the parties in a transaction. The lease was not identified as a "ground leases" and in fact, the Zoning Resolution does not expressly state that a tenant under a ground lease is a party-in-interest. It’s the substance that matters. Since the intent to include land in the Lease was discernable, Little Cherry gained valuable protection by proving its status as a party in interest under the Zoning Resolution.

Dena Cohen is a partner at Herrick, Feinstein LLP, New York, N.Y.

This article originally appeared in the August 20, 2021 edition of New York Real Estate Journal.

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Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (PA)

This [Leasehold] Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing ("Mortgage") may be used in a commercial acquisition loan transaction in Pennsylvania to secure the payment of indebtedness and obligations of borrower under the loan by granting an interest to the lender in borrower's real property. The template may be used to secure borrower's leasehold interest in real property by inserting the bracketed terms throughout the Mortgage. This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. The mortgage should be recorded in recorder's office of the county where the real property is located. Local counsel should be consulted for the correct formatting and filing requirements as they may vary by county. For more on recording a mortgage in Pennsylvania, see Recording Procedures (PA).

Assignment of Lease Explained

December 1, 2023

Understanding the complexities surrounding the assignment of a lease is crucial for both tenants and landlords. Within the UK, various situations might compel a tenant to transfer their lease to another party. In this guide we will delve into the essentials, helping you understand every facet of a lease assignment.

Rental lease agreement form on an office desk.

What is an Assignment of Lease?

In the world of property management and real estate, the concept of an “assignment of lease” is fundamental. It involves a tenant, known as the assignor, transferring their entire legal interest in a property to another individual or entity, called the assignee. This process is common in both residential and commercial contexts and plays a significant role in maintaining the fluidity of property interests, especially in a dynamic market.

When a tenant signs a lease, they agree to specific commitments, including paying rent and maintaining the property, which are enforceable for a set period. However, various circumstances may prompt a tenant to vacate the property before the lease term expires. Herein lies the importance of the assignment of lease.

Through lease assignment, the original tenant can exit the property and pass on the responsibility to a third party, who then assumes the role of the tenant with all its incumbent responsibilities. It’s important to note that while the new tenant steps into the shoes of the original tenant, the lease terms remain unchanged.

For instance, if an individual rents a flat and later decides to move out before the lease’s expiration due to reasons such as relocating for a job or changing living situations, they may opt for an assignment of the lease. This strategy allows another person to take over the living space and adhere to the responsibilities under the original lease, ensuring that the flat does not remain unoccupied and the landlord continues to receive rent payments. This seamless transition can be especially beneficial in residential areas with high demand for housing, as it minimises financial instability for the landlord and provides immediate accommodation for those in need of a home.

Key Components of Lease Assignment

Assignor and Assignee: The existing tenant (assignor) and the new tenant (assignee) are the primary parties in this agreement. Their willingness to transfer and assume the lease’s obligations, respectively, drives the assignment process.
Landlord’s Role: While not a direct party to the assignment, the landlord plays a pivotal role. Most lease agreements stipulate that landlords must provide consent before any assignment takes place. This clause protects the landlord’s interests, ensuring the new tenant is reliable and meets the required standards.
Legal Documentation: The process requires several legal documents, including the initial lease agreement and a deed of assignment. The latter must clearly articulate that all rights and responsibilities have been transferred to the new tenant. This precision prevents future disputes regarding the terms of the lease.
Liabilities: The assignment of lease doesn’t inherently absolve the original tenant of responsibilities. Depending on the agreement’s terms, the assignor might remain liable if the assignee fails to fulfil the lease obligations. This potential continued liability underscores the importance of thorough assignee vetting.

The Legal Ground

The legality surrounding the assignment of a lease is rooted in UK property law. It necessitates compliance with various statutory requirements and often involves complex legal procedures. Consequently, parties usually engage solicitors to ensure that the assignment aligns with legal protocols, protecting the interests of all involved parties.

The assignment of a lease is a nuanced process, influenced by factors unique to each situation. Whether prompted by personal, business, or financial changes, lease assignments facilitate flexibility in property occupancy and use. Understanding this concept is crucial for tenants seeking an early exit from a lease, individuals looking for established lease properties, and landlords wishing to maintain continuous tenancy and income streams.

Understanding the Deed of Assignment of Tenancy

A “deed of assignment tenancy” is a legal document that evidences the transfer of lease obligations from the current tenant to another. It is an essential part of the lease assignment process, binding the new tenant to the terms stated in the original lease.

Landlord’s Checks Before Permitting Assignment of a Lease

The assignment of a lease, while beneficial in maintaining continuous occupancy and consistent rent payments, necessitates thorough due diligence on the part of the landlord. Before consenting to an assignment, it’s imperative for landlords to conduct comprehensive checks, mirroring the depth of evaluation done during the initial tenant screening process. These checks are crucial in mitigating potential risks and safeguarding the landlord’s investment.

Detailed Assessment of the Prospective Assignee

Landlords should ascertain the financial stability and reliability of the assignee. This assessment often involves:

Credit Checks: This allows landlords to have a clearer understanding of the prospective assignee’s credit history, highlighting their ability to keep up with regular rent payments and financial commitments.
Employment Verification: Landlords typically require proof of ongoing, stable employment. This verification helps ensure that the new tenant has a consistent income stream capable of covering the rent and other associated costs.
References: Previous landlords or property managers can provide insights into the assignee’s behaviour, paying habits, and overall reliability. Personal references might also be necessary to form a more comprehensive view of the prospective tenant.

Review of the Assignee’s Intent

Understanding the prospective tenant’s reasons for seeking the property and their long-term intentions can provide reassurance. For instance, landlords should feel more comfortable knowing that the assignee plans to reside in the property for an extended period and doesn’t intend to sublet without permission or engage in unlawful activities.

Examination of Financial Documentation

Landlords may request documentation such as bank statements or savings accounts to further verify the assignee’s ability to afford the property. This scrutiny is particularly pertinent in higher-rent areas or for properties with higher maintenance costs.

Ensuring Contractual Compliance

It’s important for the landlord to confirm that the assignee understands and agrees to the terms set out in the original lease. The assignee must comply with all existing conditions, and any deviation needs to be negotiated with and approved by the landlord.

Legal Considerations

Given the legal complexities surrounding lease assignments, landlords often seek legal advice during this process. Lawyers can help ensure that the assignment adheres to local property laws, the original lease’s terms, and that the landlord’s interests are thoroughly protected throughout the transition.

By conducting these comprehensive checks, a landlord exercises due diligence, significantly reducing the likelihood of issues arising from the assignment of the lease. This meticulous approach helps maintain the property’s revenue stream, upholds community standards, and ensures the continued preservation and value of the property investment. It’s a proactive measure, providing the landlord with peace of mind that they are handing over their property to a reliable and responsible assignee.

Costs Involved in Lease Assignment

The process of lease assignment, while a practical solution for tenants looking to transfer their lease obligations, does entail various costs that both the assignor (original tenant) and assignee (new tenant) need to consider. These expenses contribute to a seamless transfer process, ensuring all legalities are properly managed, and all parties are adequately protected. Understanding these costs is essential as it prevents unexpected surprises and allows for a more transparent transaction.

Costs for the Assignor

Advertising Costs: If the landlord does not immediately have a new tenant, the original tenant may need to advertise the property. This could involve online listings, printed materials, or hiring an estate agent to expedite the process, all of which incur costs.
Tenant Screening Costs: The assignor might opt to conduct preliminary screenings of potential assignees, which include credit checks, reference checks, and other background investigations to ensure they’re presenting a reliable tenant to the landlord.
Legal Fees: The legal intricacies of transferring a lease require the involvement of legal professionals. The assignor typically bears the cost for legal consultations, drafting the deed of assignment, and any related legal documentation.
Landlord’s Administrative Fees: Some landlords charge an administrative fee for processing a lease assignment, covering the time and resources they expend to conduct their checks and modify their records.
Potential Liability Costs: If the assignee fails to meet the lease obligations, and depending on the terms of the assignment, the original tenant may remain partially liable. This contingent liability could lead to future costs.

Costs for the Assignee

Security Deposit: It’s standard practice for the new tenant to provide a security deposit before moving in. In some cases, the assignee reimburses the original tenant for the initial deposit, depending on its condition and any agreement between the parties.
Advance Rent: The assignee may need to pay the first month’s rent in advance, similar to standard leasing arrangements.
Legal Fees: Assignees also incur legal fees. They need legal counsel to review the terms of the lease, ensure the assignment is conducted correctly, and understand their new responsibilities and liabilities.
Stamp Duty: Depending on the property’s value and the lease’s remaining duration, the assignee might need to pay Stamp Duty Land Tax (SDLT) on the premium or the rent of the lease.

Shared Costs

In some instances, both parties negotiate and equally share specific costs, such as those for legal consultations, to ensure fairness and mutual satisfaction in proceeding with the transaction.

Both assignors and assignees must factor in these expenses to accurately assess whether a lease assignment is a financially viable option. It is advisable to consult with real estate professionals and legal advisors to understand all potential charges fully. Having a clear, upfront understanding of these costs allows both parties to make informed decisions, ensuring a smooth, transparent, and fair transition process.

Does Assignment Create a New Tenancy?

No, an assignment does not create a new tenancy. It merely transfers the existing tenant’s rights and obligations to the new tenant, who then steps into the shoes of the original tenant under the same lease terms.

The Necessity of Legal Assistance

It is highly advisable to engage a solicitor during the assignment of a lease. A solicitor can provide necessary legal advice, prepare the deed of assignment of lease, and ensure compliance with various property and contract laws.

Deed of Assignment vs Tenancy Agreement

While they might sound similar, a deed of assignment is not the same as a tenancy agreement. The former refers to the document transferring existing lease rights to a new tenant, while the latter is a contract outlining the terms between a landlord and tenant for new occupancy.

Parties Involved in Signing the Deed of Assignment

The deed of assignment of lease is typically signed by the outgoing tenant, the incoming tenant, and sometimes, the landlord, especially when their consent is a prerequisite for the lease transfer.

Landlord’s Consent to Lease Assignment

A landlord can refuse to consent to assign a lease, but this refusal must be reasonable. Scenarios for justifiable refusal might include the prospective tenant’s inability to meet financial commitments or proposed use of the property that violates lease terms.

Lease Assignment vs Subletting

Lease assignment involves the complete transfer of the tenant’s rights to another party.
Subletting occurs when the tenant temporarily hands over the property rights to another party but retains some rights or eventually plans to return.

Financial Responsibilities in Lease Assignment

Typically, the outgoing tenant or the incoming tenant covers the costs related to the assignment of lease, such as legal fees, administrative charges, and any leasehold improvements. The specific arrangements may vary based on mutual agreements.

Assigning a Lease Without a Deed: Is It Possible?

No, a lease assignment must be evidenced by a deed to be legally binding. The deed of assignment tenancy is crucial as it protects the interests of all parties involved and provides legal clarity.

The Meaning of ‘Assignment’ in Rent Context

In the context of renting, ‘assignment’ refers to transferring the existing tenant’s lease obligations and rights to another party. The assignee assumes responsibility for rent payments and adherence to the lease terms.

Advantages of Assigning a Lease

There are several benefits associated with the assignment of a lease, including:

Flexibility for the tenant needing to vacate the property before lease termination.
Minimal interruption in rent payments for the landlord.
Opportunity for another tenant to occupy the premises without having to negotiate a new lease.

Stamp Duty and Lease Assignment

Stamp duty on assignment of lease may apply depending on the premium paid and the lease’s yearly rent. It’s important to consult a solicitor to understand any potential tax implications.

Post-Assignment Liabilities for Tenants

After the assignment of a lease, the original tenant is generally released from future liabilities. However, they may remain liable if the new tenant defaults, depending on specific lease terms or if guarantees were provided.

Essential Documents for Lease Assignment

In the process of a lease assignment, several critical documents must be prepared, reviewed, and signed to ensure a legally binding transfer of rights and responsibilities from the original tenant (assignor) to the new tenant (assignee). These documents are crucial in defining the terms of the assignment, protecting the interests of all parties involved, and complying with legal standards. Here are the essential documents required for a successful lease assignment:

1. The Original Lease Agreement

Before any transfer, all parties must review the original lease. It’s vital to understand any clauses or terms that could impact the assignment, such as conditions requiring the landlord’s consent for any lease transfer.
The original lease agreement serves as the foundation for the assignment, outlining the terms and obligations that the assignee will need to adhere to.

2. Deed of Assignment of Lease

This legal document formally transfers the lease obligations from the assignor to the assignee. It must clearly state the terms under which the lease is assigned, including any continuing liabilities of the assignor, if applicable.
It should be comprehensive, detailing the rights and responsibilities of all parties and any guarantees provided by the assignor.
The deed is usually drafted by a solicitor to ensure that it complies with legal standards and adequately protects everyone’s interests.

3. Landlord’s Consent to Assignment

Most leases require the landlord’s formal approval for any assignment to occur. This document is the landlord’s written agreement, permitting the transfer from the current tenant to the new one.
It may come with conditions the assignee must satisfy, which should be clearly outlined in the consent form.

4. Assignee’s Letter of Acceptance

This document is proof that the assignee understands and agrees to the terms set out in the original lease and the deed of assignment.
The letter may restate key lease terms for clarity and will affirm the assignee’s commitment to abide by all the lease conditions and responsibilities.

5. Legal Advisories

Though not a formal part of the lease assignment, documentation of legal advice received by both the assignor and assignee (and possibly the landlord) is crucial.
These advisories ensure each party has been informed of their legal rights and obligations, potentially offering protection in the event of future disputes.

6. Inventory List

If relevant, an inventory list detailing the condition of the property, especially for furnished rentals, would be necessary. This document helps manage expectations and responsibilities concerning the property’s state and contents at the time of the assignment.

7. Proof of Assignee’s Financial Stability

While not always formally part of the assignment documentation, evidence of the assignee’s ability to meet financial commitments (like bank statements or employment confirmation) often needs to be submitted to the landlord during the assignment process.

The process of assigning a lease is a complex legal transaction that requires strict adherence to procedural standards. These essential documents ensure that the assignment progresses smoothly, with clear understanding and agreement from all parties involved. Both assignor and assignee should seek legal counsel to ensure their interests are protected, and all documents are in order, further underscoring the importance of each document’s role in this pivotal real estate process.

Energy Performance Certificate (EPC) Requirements

Yes, an EPC is generally required for a lease assignment, especially if the building is to be sold or rented out. This certificate ensures that the property meets the necessary energy efficiency standards.

Registering an Assignment of Lease

Registration of an assignment of lease is crucial. It validates the change of tenant under the lease, making it legally binding and enforceable. This process usually involves submitting the deed of assignment to the appropriate land registry.

Timeframe for Assigning a Lease

Assigning a lease can take anywhere from a few weeks to several months, depending on factors like obtaining the landlord’s consent, the new tenant’s credibility, and the speed of legal processes.

Embracing the Benefits of Lease Assignment

Whether you’re a tenant seeking flexibility or a landlord desiring continued occupancy, lease assignment offers solutions that can cater to your individual needs, promoting ease and continuity in the leasing process.

If you’re considering a lease assignment, it’s paramount to seek professional advice to navigate the complexities involved. The information contained in this article should be used for information purposes only and should not be relied upon in place of specific legal advice.

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Assignment Of Lease vs. Mortgage Of Lease

Contributor.

This article may only be applicable in certain jurisdictions.

Assignment of Lease.

An Assignment of Lease document includes certain generally accepted provisions.

Mortgage of Lease.

A Mortgage of Lease document typically contains some basic standard provisions.

Similarly, in the event of default, the lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

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.

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Getting a Leasehold Mortgage

Property Types
Charlotte Williams
November 21, 2022

Home » Mortgage Guides » Property Types » Getting a Leasehold Mortgage

Leasehold properties are widely available in the UK and if you’re interested in leasehold ownership, you will likely want to know about your mortgage options.

In this guide, we will tell you how leasehold mortgages work and will explain the eligibility criteria set by most mortgage lenders.

Keep reading to learn more and then get in touch with our team if you have any questions after reading this guide.

What is a leasehold property?

Most flats are leaseholds but some houses can be leaseholds too. When buying a leasehold property, you own the property for a set period of time but not the land on which the property sits.

As leases can be very long – sometimes up to 999 years – you usually don’t have to worry about losing your home. But it’s still worth knowing the differences between buying a leasehold and a freehold property when looking at your housing options.

What makes a leasehold different from a freehold?

A property can be purchased on either a leasehold or a freehold basis.

With a leasehold, you own the property until the lease expires which can be anywhere between 40 years to 999 years, depending on the leasehold agreement.

But while the property is effectively yours until the lease expires, the ground the property is on is owned by the freeholder. As such, you may have to pay the freeholder ground rent and service charges while you remain within the property.

With a freehold, you own both the land and the property for an unlimited period. As such, you don’t have to worry about a lease expiring or paying any ground rent or service charges.

Can you get a mortgage on a leasehold property?

Yes, it is definitely possible to get a mortgage on a leasehold property but your mortgage chances will depend on how long is left on the lease.

Lenders have their own rules around minimum leasehold terms but generally speaking, you are more likely to get a leasehold mortgage if the lease is at the upper end of the spectrum.

This isn’t to say you can’t get a mortgage for a short leasehold property but as fewer lenders offer mortgages for these, it is often to wise to use the services of a mortgage broker such as ourselves when searching for the appropriate lenders.

Eligibility requirements for a leasehold mortgage

The eligibility requirements for a leasehold mortgage are very similar to those on a standard mortgage but there are a few differences which can make the mortgage process a little more challenging for leasehold buyers.

The main eligibility requirements for getting a leasehold mortgage are detailed below.

Time remaining: Shorter leases, such as those that fall below 80 years, impact property values which is why it can sometimes be tricky to get a mortgage. This is because lenders are worried that they might be left with a property that is worth less than the loan they gave if the owner defaults on their mortgage. Ideally, you should look for a property with a longer lease instead of a short lease to improve your mortgage chances.
Loan-to-value (LTV): When it comes to the loan-to-value (LTV) ratio, some lenders have stricter requirements for leasehold purchases. The LTV will usually be quite low, especially if you are looking at buying a new build flat or house, so you may have to stump up the cash for a larger deposit.
Affordability: Before giving you a mortgage, lenders need to evaluate your ability to make the expected monthly repayments. As such, they will check your income and your spending to make sure you have enough money to pay for your mortgage.
Your credit history: Your credit history can impact the mortgage rates you are offered on both freehold and leasehold mortgages. If financial issues in the past have resulted in a low credit score, you may be ruled out of a mortgage or you may lose eligibility for the most attractive mortgage loans. Therefore, you should check your credit report before applying for a mortgage as it’s wise to build up your credit rating if it is particularly low.
Age: The closer you are to retirement the more difficult it can be to get a mortgage, especially if you’re hoping to get a mortgage with a term of 25 years or more. It is still possible to get a good mortgage deal if you’re of an older age but your chances will be improved if you turn to a specialist broker who can help you find the most appropriate lender. – What is the maximum age for a mortgage?

It has been my experience that you really do need to take careful consideration when buying a property with a lease that has a short term. You may be able to get a mortgage lender to give you a mortgage on the property however what will happen in a few years time and you want to sell the property and there is now even less time left on the lease? You could catch a cold as you would end up with a property that is now unmortgageable and therefore almost unsellable! – Grant Humphries

How a broker can help with a leasehold mortgage

Before applying for any mortgage, it’s wise to seek professional advice from a mortgage broker as they will be able to help you get the most competitive mortgage deal.

As the buying process can be complicated when getting a mortgage on a leasehold basis, it’s especially important to turn to a mortgage broker for help, as they can give you the tailored advice you need.

They will let you know which lenders are more likely to give mortgages on properties with shorter leases, for example, and they will give advice on improving your eligibility.

The team at YesCanDo Money are experts on mortgages for leasehold properties so can help you if you’re currently looking for your ideal mortgage.

We will make sure you get a mortgage at the most competitive rates, regardless of the type of property ownership you are considering, and we will help you with every aspect of the mortgage application.

Examples of lenders offering mortgages for this type of property

There are lots of lenders willing to offer mortgages for leasehold properties but as they all have their own criteria, you should speak to a mortgage broker who will search the market for the most affordable leasehold mortgages for somebody in your situation.

High street lenders willing to consider leasehold properties include:

Santander – To be eligible for a mortgage with Santander, there must be at least 55 years left on the leasehold at the beginning of the mortgage and at least 30 years remaining on the lease at the end of the mortgage term.
Barclays – Unfortunately, Barclays won’t offer mortgages on properties with a short lease so if you want to be eligible for one of their deals, you should look for a leasehold flat or house with a minimum of 70 years on the lease.
Nationwide – It’s possible to obtain a mortgage with Nationwide however if you’re looking to buy a new build property, you will need a longer term on the lease. There must be at least 125 years remaining on the lease if you’re wanting to buy a new build flat and at least 250 years remaining if you’re hoping to purchase a new build house. Second-hand flats and houses come with lower requirements and the minimum length of the lease will depend on where the properties are located.

Remortgaging a leasehold property

If you would like to remortgage your leasehold home, you will need to let the freeholder know about your plans as the lender won’t approve your application without the freeholder’s agreement.

If the freeholder does agree to the remortgage, they may charge you a notice fee for the new loan charge on the property.

If you are given the go-ahead to remortgage, you should then find the most appropriate lender for your circumstances. We can help you in this regard.

The remortgaging process is less straightforward for leasehold houses and flats than it is for freeholds as additional conveyancing checks are required by most lenders. As such, the process can also be more expensive due to the conveyancing costs and the other additional costs, such as those charged by the lease administrator.

Refinancing to pay for a lease extension

People remortgage for different reasons but commonly, one reason why leasehold owners refinance their mortgage is to pay for a lease extension. This is because they want to raise the resale value of their homes and extend the lease before they sell the property.

Most lenders will let you remortgage but as they will have LTV caps and specific requirements, you should speak to a mortgage broker who will give you expert advice about all matters related to the remortgage process.

Buy-to-let (BTL) mortgages for a leasehold property

It’s definitely possible to get a buy-to-let mortgage for a leasehold property but as is the case when buying a freehold property as an investment, the lender will likely impose higher interest rates and lower LTV limits to counter the risk to themselves.

The benefits and drawbacks of a leasehold property

Leasehold properties come with several benefits and drawbacks so it’s worth considering these before opting for a leasehold mortgage.

Leasehold benefits

Leasehold properties are typically cheaper than freehold properties
Due to lower purchase prices, leaseholds are a great way to get on the property ladder
The freeholder is responsible for the upkeep of any communal gardens or hallways
The freeholder is responsible for the maintenance of the building, such as roof repairs
Buildings insurance is usually covered by the freeholder

Leasehold drawbacks

You have to pay ground rent and service charges to help with the upkeep of communal areas
Ground rent and service charges may increase over time
The fewer years left on the lease the harder it will be to sell it
Conveyancing fees are higher when buying a leasehold
You won’t benefit from any increase in the land value
Interest rates are less competitive for properties with a shorter lease

Speak with a leasehold mortgage expert

When buying a leasehold, there can be lots of different factors to consider. Because there are a number of specific areas that can impact your leasehold mortgage, expert guidance plays a crucial role in making sure you end up with the best mortgage deal and terms.

We offer a free, broker-matching service. This means we’ll quickly assess your needs based on the property you’re looking at. A mortgage adviser from our team who has a wealth of experience dealing with leaseholds will search the whole market to get you the lowest rate possible from a mortgage lender that will be happy with the property you want to buy.

Just call 033 0088 4407 or make an inquiry via WhatsApp or our contact form. We’ll set up a free, no-obligation chat with your mortgage broker today.

Frequently Asked Questions

Can i buy my freehold.

You have the legal right to buy the freehold on your leasehold property if you have owned it for 2 years or more. The process will be more complicated if you’re in a flat as you will need to jointly buy the freehold with the other residents.

If the freeholder refuses to sell, you could refer them to the Leasehold Reform Act 1967 or use the services of a solicitor (via a First-Tier Tribunal) to help you with the purchase.

Is a leasehold the same as a mortgage?

No, the two are very different. A leasehold agreement allows you to own a property for a fixed lease term whereas a mortgage is what you use to buy the property itself.

When can I extend my lease?

If you buy a leasehold property, you may be able to extend the period you own it for.

Extending a lease is a good idea if you want to live in your home for longer or raise the property value so you can sell it at a later date. You have the right to extend the lease term if you have lived in your home for 2 years or more. It’s best to extend it sooner rather than later as the costs you incur for extending the lease will be less.

How can I find out how many years are left on my lease?

The lease is a legal document that you should be given a copy of after purchasing the house. You can check this for the lease lengths to find out how long is left on your leasehold. If you don’t have a copy of the lease, you can obtain one from your mortgage lender or solicitor, or by ordering one from the Land Registry.

You should also check the lease length and other lease terms before buying the leasehold property to make sure you’re happy to go ahead with the purchase.

Is a freehold better than a leasehold?

With a freehold property, you don’t have to pay ground rent, maintenance fees, or a yearly service charge, and the property and grounds are yours for an unlimited amount of time. Mortgage costs are generally cheaper too.

For these reasons, freeholds are better but if you’re looking for an affordable way to get on the property ladder, buying a leasehold property could be cheaper, despite the higher mortgage costs.

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Steve Roberts (MAQ)

Stephen Roberts MAQ is the founder of YesCanDo Money, one of the UK's largest no-fee mortgage brokers. With more than 30 years of hands-on experience in the mortgage industry, Steve really knows the ins and outs of mortgages. He's become a trusted expert and authority in the field, thanks to his deep understanding of the mortgage landscape. Speak to Steve or a member of his knowledgeable team today by completing our contact form:

YesCanDo Money is a trading name of Roberts Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority, authorisation number 527815. Your home may be repossessed if you do not keep up repayments on your mortgage.

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What’s the Difference Between Freehold and Leasehold?

What’s the Difference Between Freehold and Leasehold?

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Freehold vs leasehold

What is freehold, what is a leasehold property, the pros and cons of freehold vs leasehold ownership, what is commonhold.

Homeownership in the UK comes in two main forms: freehold and leasehold. Understanding the difference between the two is really important before you go ahead with a home purchase, as they come with very different costs and responsibilities.

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Essentially, if you’re the freeholder of a property you own both the property and the land on which it’s built outright in perpetuity (so for as long as you wish), whereas if you’re a leaseholder you’ll own the property for a set length of time but not the land on which it’s situated.

Owning a property on a freehold basis means you own not just the building itself, but the land it stands on.

You are responsible for looking after everything to do with the property, from your possessions inside, to the walls and roof of the building’s outside structure.

As a result, if you want to make any changes to the property’s structure ‒ such as adding an extension ‒ you are free to do so, as long as you have any necessary planning permission from the local council.

Can I buy the freehold?

If you are a leaseholder, then you can look into buying the freehold of your property. For example, If your property is a flat, you may be able to buy a share of the freehold, which you would own alongside the other flat owners. If the property is a house, you may be able to buy the full freehold.

This can be a lengthy and expensive process, and it’s well worth getting expert legal advice.

How much does it cost to buy a freehold?

The cost of buying a freehold varies significantly for many reasons, just like house prices . But, generally speaking, the shorter your lease the more expensive the freehold will be.

You’ll have to cover other costs on top of the sale price of the freehold including:

valuation fees
Land Registry fees
the freeholder’s legal and valuation fees

Buying the freehold can be a very complex process, especially if there are many tenants involved. So it’s important to seek independent legal and financial advice before taking on the task to avoid any expensive mistakes.

What is a flying freehold?

A flying freehold is a property that is built over land but isn’t part of the property. For example, if one freehold property hangs over another. Flying freeholds might happen in the following situations:

adjacent terraced or semi-detached properties if there isn’t a definitive vertical dividing line that can split them
houses built on steep hills
rooms built across passageways
basement vaults and cellars that run beneath other properties
a balcony that overhangs the property next door

It’s important to check whether a property has a flying freehold before applying for a mortgage. Some providers won’t lend for this type of property, while others may have restrictions.

Leasehold is rather different from freehold. You effectively lease ownership of a property for a specific period. This tends to be over a lengthy period, but usually varies from anywhere between 125 to 999 years.

You will have a contract with the freeholder of your property, which sets out precisely what you are responsible for. You will likely be required to pay certain annual costs, while you will also be required to contribute towards maintenance and service charges.

Generally, you will need to get permission from the freeholder to carry out any major works to the property, while there may also be limitations on things like keeping pets.

Should the lease expire, then the full ownership of the property will revert to the freeholder.

Leasehold is usually reserved for flats and apartments, but this has not always been the case. Many older properties in England, Wales and Northern Ireland are on leaseholds and, in recent years, there have been a number of new-build homes sold in this way. In 2019, the UK government banned this practice, ensuring that all new-build homes are sold as freehold.

Can you extend a lease?

You can apply to your landlord to extend a lease at any time. If you qualify you may be able to extend your lease on a flat by up to 90 years or by 50 years for a leasehold house.

The cost of extending a lease varies and is usually made up of two parts:

The premium: the agreed price for extending the lease.
Fees and taxes: this includes the cost of hiring professionals and taxes that may apply.

Using the Leasehold Advisory Service’s (LAS) lease extension calculator can give you an estimate of how much extending your lease will cost.

Under new Government plans, which are yet to become law, all leaseholders could soon be given the right to extend a lease by 990 years and not pay ground rent.

Should I buy a leasehold house?

Whether or not you buy a leasehold or freehold property will largely depend on availability and your financial circumstances.

If you are considering a leasehold property, it’s important to be aware of additional fees you’ll need to cover and service charges. Depending on the terms of your lease, the freeholder may increase these fees every few years, making them significantly more expensive in the future. Similarly to mortgage payments, your home may be repossessed if you fall into arrears.

You should also check the terms of your lease to avoid any surprises – for example, if there is a ban on having pets or restrictions on home improvements.

It’s also vital to check how long is left on the lease. It may be difficult to get a mortgage for a property with a lease of less than 80 years. And a lease of fewer than 70 years can severely affect the value of the property. The cost of extending a lease can be expensive, so it’s something to think about before buying a leasehold property.

How is the law around leaseholds changing?

In recent years the Government has been taking steps to offer more support to leaseholders.

In England and Wales, ground rent has effectively been banned on new leases since June 2022 (except for retirement properties, which will not come into effect before April 2023).

There are also plans to allow lease extensions of up to 990 years and other changes that could help reduce the costs associated with extending leases or buying a freehold.

There are advantages and disadvantages to buying both freehold and leasehold properties.

Advantages of buying a freehold property

Advantages to buying a freehold property include:

Full ownership: You’ll have complete ownership of the property and land (so long as you keep up with your mortgage repayments, and/or pay off your mortgage).
No charges: You won’t have to pay ground rent, service charges, admin fees to the landlord.
Flexibility: You can do what you want with your home – for example, having pets or making home improvements, within the permissions of the local authority or council.
No Lease: You don’t have to keep track of when the lease runs out or pay to extend it, which can be expensive.

Disadvantages of buying a freehold property

Some disadvantages of buying freehold property include:

Expensive: Freehold properties usually cost more to buy because you own the land as well as the property itself.
Property type: Freehold properties tend to be houses rather than flats, so if you are looking for a flat this could limit your choices.
Maintenance costs: You will be responsible for the upkeep of the whole property and for paying buildings insurance.

Advantages of buying a leasehold property

Some of the advantages of buying a leasehold property include:

Cheaper properties: Leasehold properties tend to be cheaper than freehold properties. However, this is due to the risks involved.
Less responsibility: The freeholder usually manages maintenance for the building and communal areas and arranges buildings insurance.

Disadvantages of buying a leasehold property

The disadvantages of buying a leasehold property include:

Limited ownership: Leaseholders effectively rent from the freeholder and don’t have exclusive ownership over the property and land it sits on.
Rent and fees: On top of your mortgage, you’ll have to pay ground rent and service charges which can increase. If you don’t keep up with these payments, your house can also be repossessed.
Restrictions: You’ll need written permission from the freeholder to make changes to the property and may have to pay additional fees.
No pets: Some leasehold properties ban owners from having pets.
No businesses: You might not be allowed to run a business from home.
Conveyancing fees: These tend to be more expensive for leasehold properties.
Selling: It’s harder to sell a leasehold property with a shorter lease, which means you may miss out on profiting from property price growth.

» MORE: All about getting mortgage advice

While buying a property freehold or leasehold are the two main ways to own a property in England, Wales and Northern Ireland, it is worth noting that in Scotland, properties are either available freehold or under a third type of ownership, known in the rest of the UK as ‘commonhold’.

Under Scottish law, long leases were converted to full ownership in the Long Leases (Scotland) Act 2012. This means that homeowners own the freehold of a flat in a building without a time limit, and will pay a service charge – called a ‘factor’ in Scotland – to maintain the common parts, which are jointly owned and managed by all the flat owners.

» MORE: Current mortgage rates

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About the Authors

Brean was a writer and spokesperson for NerdWallet who covered a variety of topics including money-saving tips, credit scores and managing debt. With over five years' experience in finance, she…

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

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IMAGES

Leasehold Mortgage vs. Assignment of Lease
FREE 9+ Sample Assignment of Lease Templates in MS Word
Freehold vs leasehold: What's the difference?
Freehold vs Leasehold Property 2024
Assignment of Leasehold Covenants and Terminating a Leasehold Estate
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COMMENTS

Leasehold Mortgage vs. Assignment of Lease
An assignment of lease transfers an unexpired lease to someone else, who then takes over the rental payments. Tip. A leasehold mortgage is a loan taken out on a piece of property that is owned by ...
Assignment of Lease vs. Mortgage of Lease
An Assignment of Lease document includes certain generally accepted provisions. The debtor assigns to the lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.
What Is a Leasehold Mortgage? Everything You Need to Know
Conclusion. In conclusion, a leasehold mortgage is a mortgage taken out on a leasehold property, where the ownership of the property is subject to a lease agreement with a freeholder. While owning a leasehold property has its advantages, such as prime locations and well-maintained buildings, it also comes with disadvantages, including limited ...
Leasehold Mortgage
A loan secured by a mortgage lien placed on the tenant's leasehold interest. The leasehold mortgage is typically recorded in the county recorder's office in the county where the leased premises are located. This type of financing is commonly used by a tenant to: Construct new improvements on the leased land.
Assignment of Lease: Definition & How They Work (2023)
An assignment ensures the complete transfer of the rights to the property from one tenant to another. The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent.
Understanding Leasehold Mortgages: Exploring Definition and Mechanisms
A leasehold mortgage is a type of mortgage where the borrower owns the property but not the land it stands on. The borrower enters into a lease agreement with the landowner, usually for a long-term period, and pays rent for the use of the land. The leasehold mortgage is secured against the leasehold interest in the property.
What is a Leasehold Mortgage?
A leasehold mortgage is possible when a lien is placed on the tenant's interest with the lease, and it is used as collateral for the loan the individual obtained. This means that monies were sought for one reason or another, and it placed a lien on the property lease with a financial institution. Generally, this occurs so that the leaseholder ...
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While leasehold mortgages have been around for a long time, in recent years the financial markets have made them more attractive to retailers as a way to finance expansion. ... The lender, however, will need to be released from all liabilities and obligations under the lease accruing after assignment and the lender will also need to retain any ...
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A debtor's interest in real property leases (whether as landlord or tenant) means a Lender should obtain either an Assignment of Lease or a Mortgage of Lease as additional security. Like any ...
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An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords ...
Assignment Of Leases And Rents: Definition & Sample
The assignment of leases and rents, also known as the assignment of leases rents and profits, is a legal document that gives a mortgage lender right to any future profits that may come from leases and rents when a property owner defaults on their loan. This document is usually attached to a mortgage loan agreement.
Leasehold Financing: Key Issues for Mortgage Lenders
Finance Alert. 4.16.18. Share. When entering into a long-term ground lease, one of the ground lessee's principal concerns is assuring that its leasehold interest in the property is "financeable.". [1] A mortgage lender providing financing to the holder of a leasehold interest needs to confirm the ground lease contains certain key features ...
Key Points: Financing Leasehold Interests in Real Estate
A leasehold mortgage can be enforced through foreclosure…but consider additional remedies: the granting of a new lease or the assignment of the lease to a new tenant. The lease should have a "no merger" clause. Address the lender's right to enforce the lease, consent to amendments, receive insurance proceeds, and obtain possession. Do ...
Best Practices: Obtaining Assignment of Leases and Landlord Waivers
When a substantial portion of the loan proceeds are to be used for leasehold improvements or a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate, the Lender should obtain: ... An Assignment of Lease with: A term including renewal options that equals ...
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Therefore, ground leases must contain provisions that permit the tenant to obtain one or more leasehold mortgages and special leasehold mortgagee protections so that the lender can protect its collateral (e.g. right to receive notice of and an opportunity to cure any defaults by the tenant and receive a new lease if the lease should terminate).
PDF Leasehold Financing: What S Needed and Why
In order to make the leasehold mortgage loan, leasehold mortgagees need to be satisfied as to the following items: • Prohibitions: The ground lease does not trigger a default based on a default under the leasehold mortgage. The ground lease allows the leasehold mortgagee to "step into the shoes" of the lessee upon a loan default.
Leasehold Mortgage Vs. Collateral Assignment Of Lease
Collateral Assignment of Lease Leasehold Mortgage vs. Collateral Assignment of Lease: Understanding the Key Differences and Types Leasehold mortgage and collateral assignment of lease are two distinct legal concepts pertaining to the use and ownership of leased property. It is crucial to understand their differences, as they have various ...
Getting A Mortgage On A Leasehold Property
The LTV is the ratio of how much you borrow against the cost of the property. For a £200,000 property, for example, if you have a deposit of £40,000 you'll need to borrow £160,000, or 80% of the property value. Lenders tend to offer lower LTVs on leasehold properties. For example a provider may lend 90% on a freehold property but only 85% ...
Mortgage, Assignment of Leases and Rents, Security Agreement ...
This [Leasehold] Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing ("Mortgage") may be used in a commercial acquisition loan transaction in Pennsylvania to secure the payment of indebtedness and obligations of borrower under the loan by granting an interest to the lender in borrower's real property. The template ...
Assignment of Leasehold Mortgage Definition
Related to Assignment of Leasehold Mortgage. Assignment of Lease means the Assignment of Lease to be executed by the Seller at the Closing with respect to each parcel of Leased Real Property listed on Section 3.16(b) of the Disclosure Schedule, in a form to be mutually agreed by the Seller and the Purchaser.. Assignment of Leases With respect to any Mortgaged Property, any assignment of leases ...
Assignment of Lease Explained
The assignment of a lease is a nuanced process, influenced by factors unique to each situation. Whether prompted by personal, business, or financial changes, lease assignments facilitate flexibility in property occupancy and use. Understanding this concept is crucial for tenants seeking an early exit from a lease, individuals looking for ...
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A debtor's interest in real property leases (whether as landlord or tenant) means a lender often obtains either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender's security in the underlying debtor ...
Getting a Leasehold Mortgage
Barclays - Unfortunately, Barclays won't offer mortgages on properties with a short lease so if you want to be eligible for one of their deals, you should look for a leasehold flat or house with a minimum of 70 years on the lease. Nationwide - It's possible to obtain a mortgage with Nationwide however if you're looking to buy a new ...
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Freehold vs leasehold. ... It may be difficult to get a mortgage for a property with a lease of less than 80 years. And a lease of fewer than 70 years can severely affect the value of the property ...

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