Leasehold

Leasehold means owning a building or unit for a fixed term on land you do not own. The land stays with the landlord — often a government, a First Nation, a university, a condominium corporation, or a private owner — and the buyer holds a leasehold estate rather than freehold title. The lease is registered in the provincial land registry, and the remaining lease term is part of what you are buying.

How leasehold ownership works in Canada

A leasehold interest is created when a landowner (the lessor) grants a long-term lease to a tenant (the lessee). The lessee can build on the land, sell the building, and mortgage the leasehold interest, but only for as long as the lease runs and subject to its terms. Because the land is not owned outright, the title a lawyer searches is a leasehold title, and the documents include the lease itself, any ground rent payable to the landlord, and the renewal or extension provisions. Leasehold arrangements appear in many forms across Canada: federally and provincially leased Crown land, reserve land leased with federal approval, campus land leased by universities, and long-term leases on private land.

Why lenders treat leasehold differently

Mortgage financing on a leasehold property is judged on both the borrower and the lease. Lenders typically want the remaining lease term to extend beyond the mortgage's amortization period, so the lease cannot expire while the mortgage is still outstanding. They usually ask for the registered lease, proof that ground rent is paid, landlord consent to the mortgage, and a charge registered against the leasehold title. Some lenders do not offer leasehold financing at all, and those that do may require a shorter amortization, a larger down payment, or a more conservative loan-to-value ratio. Where mortgage default insurance is required, the insurer's own leasehold rules apply, so confirm the current requirements with your lender and the insurer.

What to check before you commit

• How many years remain on the lease, and on what terms it can be renewed.
• Ground rent, lease fees, or other amounts payable to the landlord, and how often they can change.
• Whether the lease is registered and whether the landlord must consent to a sale or a mortgage.
• How a shortening lease affects resale appeal and market value over time.

A leasehold unit can be entirely financeable when a long term remains and the lease terms are clear. As the term shortens, the pool of buyers and the appetite of lenders narrow, so a leasehold purchase is worth pricing alongside comparable freehold options and reviewing with a lawyer and a mortgage professional.