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(February 1, 2022)

Intro (pre-amble): up to 14:01 mark of podcast (Your mortgage pre-approval doesn’t include leased land | 100,000’s of foreign nationals became Permanent Residents in Canada…see ya later foreign buyer tax! | wtf…rate’s didn’t go up?! | are variable rate mortgages a bad play right now?)

Here’s what you need to know..

Every so often I receive a mortgage application for a property purchase that is situated on leased land. By definition, this means that if you purchase/own a leasehold property you own only the structure/property on the land, not the actual land beneath it. So…heads up (literally)! You only own what lies ON the land. It’s not your typical real estate transaction as you will always be attached to a lingering sense of uncertainty – what if the lease doesn’t renew? Or when it does renew, will there be new conditions? Can the leaseholder suddenly appear at my doorstep and rescind on the lease? These are excellent questions and all of which require your lawyer’s involvement early on in the offer stage. DO NOT remove conditions on an offer without having your lawyer review the lease agreements (be sure to forward all documents and sub-sections associated with the lease – there could be many). And while your lawyer is reviewing the leasehold agreement, have your mortgage broker inquire to lenders to see which ones will finance the property (because most of them won’t!).

Here are some key points regarding leasehold properties:

There are various forms of property leaseholds, the most common are: City, Corporations, University and First Nations Reserves
the most challenging leaseholds: First Nations Reserves and Private Corporations
more lenders decline leasehold properties than those that are willing to lend against them. This alone could potentially reduce demand for the property with prospective buyers that require a mortgage for completion. And those that are willing to finance on leaseholds will not approve a mortgage for a term or an amortization that is longer than the lease itself. As a result, leasehold properties are typically less expensive than regular properties and in some cases, significantly less
there could be additional fees associated with leasehold properties just as there are with traditional properties such as Home Ownership Association and Lease Payment costs.
Here are some key leasehold terms that lenders look for when reviewing the leasehold agreements:
must be in favor of the borrower,
must be signed by the landlord and assignable to the bank,
cannot be subject to renegotiation at the landlords discretion prior to the expiry of the original term,
lease must be prepaid for the entire term of the lease,
no restrictions or limitations on the re-sale of the property

Conclusion – two MASSIVE takeaways:

1) Submit a copy of the lease to your mortgage broker and lawyer BEFORE proceeding with an accepted offer,

2) Ask for an extension or collapse the offer if your lawyer and broker haven’t reviewed the leasehold agreement and given you their blessing to proceed