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Commercial Leasing - Mortgagee Consent

Many businesses operate their business from leased premises. A lease should provide certainty for both landlords and tenants as to the term of the lease, the rent payable and other conditions that will apply throughout the lease.

A very important issue that is often overlooked in commercial leases is the consent of a mortgagee (usually a bank) of the property.

How does a mortgage impact on the lease of commercial property?

If the Landlord’s mortgage relates to a loan from a bank, the bank’s mortgage will invariably require the owner to get the bank’s consent before entering into a lease of the property. Consequently, a landlord who fails to notify the lender of a proposed lease is more than likely to be in breach of their mortgage.

In our experience, most lenders are reasonable when faced with a request to consent to a lease.

The legal term for the consent provided by the lender is ‘mortgagee’s consent’.  It is good practice to attach the consent at the end of the lease as proof that the lender has consented to the lease.

Obtaining the mortgagee’s consent means that if the landlord defaults on their mortgage repayments, the lender must then honour the lease.

Mortgagee consent is fundamental to a tenant’s security of tenure at the premises. Without mortgagee’s consent, a lease may potentially be terminated by the lender if the landlord defaults under the mortgage, or an option for a further term may not be honoured by the lender.

A properly prepared lease should provide for the Landlord to obtain the mortgagee’s consent and state who is responsible for paying the lender’s consent fee. In our experience the fee charged by the lender can range from $150 up to $400.

Mortgagee’s consent to a lease operates to protect the tenant if there is a dispute as to the priority between the tenant and the landlord’s lender.  In relation to Tasmanian property it typically arises when:

  • the Landlord defaults under the terms of the mortgage;
  • the mortgage was granted before the lease; or
  • the mortgagee wants to sell the land without having regard to the lease.

In Tasmania, the Torrens system of land ownership gives the interest of a lender who holds a mortgagee some priority over a tenant who leases that property and the mortgagee's consent to the lease has not been obtained. 

It is very important that Landlords and Tenants understand their rights and obligations with respect to Commercial Leases.

We are able to assist Landlords in drafting and negotiating leases or Tenants in reviewing and negotiating leases for office, retail, warehouse, industrial, farming and residential leases.

If you have any queries or require any assistance in relation to leasing, please contact us on 03 6332 9353 or use our Contact Us form that can be found at http://www.cormistonlegal.com.au/contact 

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