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101 Streetsmart Condo Buying Tips for Canadians (2006). Douglas Gray, B.A., LL.B.. p. 44.

Leasehold Mortgage

A leasehold mortgage is a mortgage on a house or condominium where the land is rented rather than owned. The mortgage must be amortized over a period that is shorter than the length of the land lease. Normally a lender will not grant a mortgage on leasehold property unless the duration of the lease is of sufficient length that the risk is fairly minimal to the lender. For example, [Plight 1] if a condominium is on leasehold land with a 99-year lease and there are 85 years left on the lease, then there is relatively little risk to the lender [mine]. On the other hand, [Plight 2] if the leasehold is for a 30-year period and there are five years left on the lease, the lender will consider the risk too high, because at the end of the five-year period the lease will expire and therefore there is no right or entitlement to

p. 45

the leasehold interest. This would mean that the condominium would have no value to a potential purchaser after five years.

I understand that plight 2 (5 years left) is more pressing than plight 1 (85 years left), but how does Plight 1 beget only "relatively little risk to the lender"?

I'll be dead in 85 years, but I'd like my younger sibling to live comfortably. How can anyone shrewd buy such a condominium, and overlook the risk of the land lease expiring without being allowed to renew? If I'd be too frightened to buy now, wouldn't a lender be too startled to lend?

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The lender isn't you or your younger sibling, it's the bank you're borrowing money from. By the time your younger sibling comes to occupy the building they'd have their money and the length of the lease would not be the bank's problem any more.

Banks usually won't lend on anything without a reasonable lease though as the property is worth less and less as the lease draws shorter. The bank wants to be in a position to get their money back at any time and if they expect that in the future (before the loan is repayed) are would be no buyers because the lease is too short they won't lend in the first place.

Canadian law is based on English law but rights to extend leaseholds at reasonable fees were only introduced into English law in 1993. It seems holders of Canadian leaseholds face a more uncertain future.

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