Upgrad LLM

mortgage of leased property?

Can a person having a shop on lease for 30 years, mortgage it, for a commercial loan?

Retired Manager

Lease hold rights can be mortgaged provided the lease agreement provides for such mortgage. However, it is fraught with many risks for the Creditor giving loan based on such mortgage.

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If it is mentioned in the said lease deed that the said leased property can not be mortgaged and/or subleased, then the said leased property can not be mortgaged.

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If the conditions of the lease agreement is silent about the mortgage clause, you stand losing a chance for that.  Without a specific permission to d so, it would be illegal and invalid.

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Junior Counsel

Adv. Kalaiselvan, lease creates an interest in the property which is heritable and transferable, I think in the absence of a specific bar to such transfer in the lease deed, the mortage can be created. However, the mortgagee can only become a lessee for the remainder of the period and will not be able to sell such property on ownership basis except with the express consent of the lessor. There is no specific bar on such mortgages. However it is always advisable to obtain the lessor's consent and it depends on the Banks internal policy as well whether to create such a mortgage. Even RBI policies will need to be checked for any specific bar.

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@Mr. Rushil:  You may peruse certain excerpts from commercial code on lease agreements given below for your information:

SECTION 10301-10311

Except as otherwise provided a lease
contract is effective and enforceable according to its terms between
the parties,against creditors
of the parties.

if a transfer is made
that (A) is prohibited under a lease agreement or (B) materially
impairs the prospect of obtaining return performance by, materially
changes the duty of, or materially increases the burden or risk
imposed on, the other party to the lease contract, unless the party
not making the transfer agrees at any time to the transfer in the
lease contract or otherwise, then, except as limited by contract, (C)
the transferor is liable to the party not making the transfer for
damages caused by the transfer to the extent that the damages could
not reasonably be prevented by the party not making the transfer and
(D) a court having jurisdiction may grant other appropriate relief,
including cancellation of the lease contract or an injunction against
the transfer.
   (e) A transfer of "the lease" or of "all my rights under the
lease," or a transfer in similar general terms, is a transfer of
rights and, unless the language or the circumstances, as in a
transfer for security, indicate the contrary, the transfer is a
delegation of duties by the transferor to the transferee. Acceptance
by the transferee constitutes a promise by the transferee to perform
those duties. The promise is enforceable by either the transferor or
the other party to the lease contract.
   (f) Unless otherwise agreed by the lessor and the lessee, a
delegation of performance does not relieve the transferor as against
the other party of any duty to perform or of any liability for
   (g) In a consumer lease, to prohibit the transfer of an interest
of a party under the lease contract or to make a transfer an event of
default, the language must be specific, by a writing, and

Further clarifications can be rendered based on the need of the circumstances referred.



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