Designing a solid security package: Charge/mortgage

My name is Stephanie Harvey and I'm a Corporate/ Commercial Lending Lawyer with Gowling WLG. This video is part of our Types of Security video series.

In this video, we are going to discuss another common security document, being the Charge/Mortgage.

A Charge/Mortgage is likely one of the first things to come to mind when we think about ways to secure a loan. Whereas a Security Agreement gives a lender a security interest in the personal property of the borrower, under a Charge/Mortgage the borrower grants to the lender a charge or mortgage over real property owned by the borrower. Generally speaking, this is the equivalent of a security interest in that real property. Real property consists of the lands and buildings that a person or corporation owns, in addition to all the rights related to those assets, such as the right to lease or sell the asset.  The Charge/Mortgage is granted to the lender to secure the repayment and performance of a loan or debt, and must include a full legal description of each real property subject to the Charge/Mortgage. 

The Charge/Mortgage will traditionally include specific covenants whereby the borrower grants several rights, remedies and recourses to the lender against the borrower and the lands and buildings if the borrower defaults or fails to make payments or perform other obligations under the loan.   Charge/Mortgages will also routinely contain provisions entitling the lender to occupy the lands and buildings subject the Charge/Mortgage and the power to sell those lands and buildings in the event of a payment or other default after the expiry of certain statutory notice periods.  In most cases, these common provisions will be grouped together in a set of what is known as the Standard Charge Terms, previously filed by a lender with the applicable land registry office.  They can be incorporated directly into a Charge/Mortgage by referencing the filing number of the Standard Charge Terms on the mortgage document itself to avoid the need to repeat several pages of text.

In each case, the actual registered owner of the real property regardless of which entity is the borrower must grant a Charge/Mortgage.  A guarantee will be needed where the borrower is not the registered owner of a real property.  In addition, care must be taken in those special instances where lands are owned by nominees for other beneficial owners, or by two or more parties as joint tenants or as tenants in common.

Charges/Mortgages typically come into two different formats, a Conventional Mortgage and a Collateral Mortgage. 

In a Conventional Mortgage, the borrower will grant the lender a charge that is limited to the principal amount of the actual loan advanced and limited to a specific real property or location.

The specific interest rate applicable to the mortgage loan, as well the amount and the timing of the required payments under the mortgage loan are usually all set out in the mortgage document itself. 

In a Collateral Mortgage, the borrower may grant to the lender a charge that exceeds the current principal amount of the loan, and which covers a number of real properties owned by the borrower.

Collateral mortgages allow the borrower to borrow additional funds from the lender in the future without having to re-finance the loan or register a new mortgage.

The mortgage document may only refer to a generic interest rate and payments, with the specific interest rate applicable to the mortgage loan, as well the amount and the timing of the required payments and other aspects of the business deal, all being set out in a separate loan agreement or commitment letter.

In order to be effective against a third party, a Charge/Mortgage must be electronically registered in the public land registry system of the province or territory where the real property securing the loan is located.

Prior to registration of a Charge/Mortgage, a lender will need to conduct searches in the applicable land registry office to ensure that the borrower actually owns the real property and can properly grant the charge to the lender and that there are no municipal planning legislation issues involved with adjoining lands to the real property intended to be mortgaged.  It will also need to confirm the absence of prior charges and other registered interests. Title issues can sometimes be difficult to spot and manage, so the Charge/Mortgage is typically supported by a title insurance policy that protects against a variety of risks.

Should you have any questions about the content of this video, please feel free to reach out to me directly, or to any one of the Gowling WLG lending team.  Thank you so much for watching this video.