Mortgage-Leasehold rights
nishad
(Querist) 26 February 2010
This query is : Open
Hi All,
Can a leasehold rights be equitably mortgaged? A leasehold given for a period of 30 yrs to a trust and the trust needs to avail a loan from the bank.
Please advise how has to create EM in favour of the bank?
1.The original owner
2.The leasee since the period of lease os for 30 years
3.The original owner and Leasee jointly since both have interest in the property
Please advise
K D Pande
(Expert) 26 February 2010
Equitable Mortgage is to be created from Lessee only.
Devajyoti Barman
(Expert) 26 February 2010
Though the lease can be transferred , the leasehold interest can not be equitably mortgaged as equitable mortgage can be created only by deposit of title deeds of the property and not by transferring any interest in it.
However since in your case both the lessor and the lessee are equally interested in the property then there should not be any difficulty in creating an equitable mortgage but definitely not by transferring leasehold interest alone.
nishad
(Querist) 27 February 2010
Thanks barman...certainly leasehold interest can not be equitably mortgaged....my question is who has to create EM in favour of the bank in respect of the property carrying leasehod interest....
is it the owner of the property or the Leasee enjoying the leasehold for 30 yrs..
The Lease deed have provisions for mortgaging the property by the leasee and apparently no other restrictions...
Parveen Kr. Aggarwal
(Expert) 27 February 2010
Section 58(f) of the Transfer of Property Act, 1882 defines Mortgage by deposit of title deeds (or Equitable Mortgage) in the following words:
"Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds."
"Title" is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership. Conveyance of the document may be required in order to transfer ownership in the property to another person. Title is distinct from possession, a right that often accompanies ownership but is not necessarily sufficient to prove it. In many cases, both possession and title may be transferred independently of each other.
A lessee only has a right to possession and does not have title. As such, it is necessary that the owner (who is having title of the property) creates equitable mortgage.
In case lessor (or owner of the property) is creating equitable mortgage, the lessee be associated.
nishad
(Querist) 27 February 2010
Normal of way of doing EM of Leasehold property is by Leasee after taking the consent of the original owner [if there is no enabling provision in the instrumnet for mortgaging the property]
But the problem here is the EM is created by the owner of the property and not by the leasee for a loan granted to the leasee[trust]? is this EM valid? should Leasee also need to execute EM?
Please advise as I am in a bit of confused state
nishad
(Querist) 27 February 2010
thanks praveen..but are you sure EM has to be created by original owner for a leasehold property ? I guess it depends upon the instrument..please correct if i am wrong
Parveen Kr. Aggarwal
(Expert) 27 February 2010
Equitable mortgage is creation of mortgage by deposit of title deeds by way of delivery of title documents with intent to create a security thereon. The lessee does not have title deeds with him and despite execution of lease deed, the title deed remains with the lessor (the owner). Then how can a lessee deposit title deeds. Secondly, intention to create a security over the property (which essentially involves ownership rights) is a pre-requisite and the lessor cannot have any intention to create security over the property because he is only having interest in possession of the property and not title. So, in my opinion it is only the owner who can create mortage by deposit of title deeds (or equitable mortgage) though with association of the lessee and the lessee alone can not create such mortgage.
Sachin Bhatia
(Expert) 27 February 2010
I agree with Mr.Devajyoti Barman
nishad
(Querist) 27 February 2010
thanks praveen...can you please explain what you mean by in association with Leasee..do you mean a joint creation of EM, since Lease deed is primary document as far as Leasee is concerned over the scheduled property which is subject matter of mortgage...
Heaven 2011
(Expert) 27 February 2010
Absolutely right Mr. Barman.
Parveen Kr. Aggarwal
(Expert) 28 February 2010
Yes. By association of lessee, I meant to say the joint creation of Equitable Mortgage because a lessee having lease for 30 years is having substantial right in the property.
Kumar Thadhani
(Expert) 28 February 2010
Yes expert Mr.Barman is righly answered your query.
nishad
(Querist) 28 February 2010
Thanks Parveen..i go with that view since leasee is also interested in the property to the extent of his lease period..
thanks all for making a fruitfull discussion arounf this topic
Arif Iqbal
(Expert) 17 May 2023
In a similar case, a property has being leased out for 10 years. Two conditions of the lease deed are as follows:
a) When the Lessee/Second Party for the purpose of establishing or developing the industry on the demised property seeks to obtain loan from a bank or other Financial Institution by mortgaging his Lease-hold interest on the demised property in favor of such Bank or Institution, permission will be given by the Lesson/First Party to this affect provided such mortgage does not affect the rights and powers of Lessor/First Party under this Deed.
b) In case of mortgage of such land to the Bank/Financial Institutions by the Entrepreneurs/Industrial houses (i.e. Lessee/Second Party) with prior permission of the concern authority under industries Commerce Department. (i.e. Lessor/First Party) for purpose of taking loan/Financial Assistance the bank/Financial Institutions will have a limited right to utilize the land till expiry of the lease period on failure of the Entrepreneurs/Industrial houses to settle the loan/Financial Assistance.
Now my question is if the Lessor gives NOC, can the Lessee create EM in favour of Bank. If yes then if it is enforceable under trhe SARFAESI?
laxmikanth
(Expert) 22 August 2023
With due respect to the experts, I can say the leasehold interest of the lessee over the landed property can be mortgaged to financial institutions for getting financial assistance. If the borrower failed to discharge the loan, the bank can put the leasehold rights and the developed infrastructure over the leased property to sale to the interested party to recover the loan. How the lessor will come forward to create any type of charge against the property for the lessee's loan? The extent of the loan will be assessed with the value of the leasehold rights i.e.; the period of the lease, and the developed infrastructure over the leased property by the lessee.
