Long leases—mortgage cure rights

The following Property practice note provides comprehensive and up to date legal information covering:

  • Long leases—mortgage cure rights
  • Mortgagees’ rights on forfeiture generally
  • Notice of forfeiture
  • ‘Mortgage cure’ clauses
  • Steps to take in relation to protection clauses
  • Mortgage cure clauses in development finance
  • The mortgagee should still act swiftly

Long leases—mortgage cure rights

A ‘mortgage cure’ clause (or ‘mortgagee protection’ clause) provides some protection to lenders in relation to the landlord’s rights to forfeit a lease (or to terminate a development agreement in the event of tenant breach where the development agreement forms part of a lender’s security package). It will generally require the landlord to notify any mortgagee (of which it has notice) before exercising any rights to forfeit and often allows the lender a period of time to remedy the breach that gave rise to the landlord’s right to forfeit. Such a clause is most commonly required by lenders when they are taking security over a long lease.

Forfeiture provisions in rack-rented occupational leases are commonly accepted, as such leases rarely have capital value. However long leases (which usually have a minimal ground rent) are considered more akin to freeholds and are likely to have a substantial capital value. Lenders who take security over long leases are therefore keen to ensure either:

  1. that the lease does not contain a right for the landlord to forfeit, or

  2. that there are additional protections for the lender built into the forfeiture provisions

It is important to note that a mortgagee protection clause on its own will not be sufficient protection for a lender if the lease also includes a right to forfeit in the event of

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