Although registration of a lease with the land titles office may provide protection to the Tenant from being evicted by a 3rd party buyer should the Landlord decide to sell the freehold in the land/property, there is still a potential issue of risk if the land/property is subject to a mortgage.
A prior Mortgagee (bank/financier) with its interest registered on title is not bound by a subsequent registered lease, unless the mortgagee has consented to the lease.
Section 66 Land Title Act 1994
Validity of lease or amendment of lease against mortgagee
A lease or amendment of a lease executed after registration of a mortgage of a lot is valid against the mortgagee only if the mortgagee consents to the lease or amendment before its
registration.
It is not uncommon for a Landlord to take out a loan when purchasing land/property. Where that happens, the Landlord’s bank will register a mortgage on the title to the property to secure the loan.
Under the terms and conditions of the loan and mortgage:
it is likely there is a provision requiring the Landlord to obtain the bank’s consent before it leases all (or part) of the land/property; and
the Landlord’s bank will be given a right to exercise a power of sale over the land/property in the event that the Landlord defaults under its loan agreement.
The risk to a Tenant is: - if the Landlord defaults under their mortgage, the Mortgagee could treat the Tenant as a trespasser, terminate the lease and eject the Tenant, allowing the mortgagee to sell the land/property as vacant possession.
It is important from a Tenant’s perspective to:
check if the Landlord’s land/property is subject to a mortgage; and
if so, obtain the mortgagee’s consent prior to registering the lease with the Land Titles Office.
For further information, contact Greyson Legal: mail@greysonlegal.com