There are many costs to leasing a premises, not just rent and outgoings. One of these costs may include a lessor’s mortgagee consent fee. Not only is it important for lessees to be able to identify what this cost is, but it is important that both lessors and lessees be aware it is lawful to make the lessee pay the consent fee. Depending on the type of lease, commercial or retail, dealing with the consent fee the wrong way may mean the lessee pays an unnecessary cost or the lessor has committed an unlawful act.
What is the mortgagee’s consent fee?
A mortgagee’s consent fee, is a cost payable to make the lessor’s mortgagee, in exchange for the mortgagee’s agreement to be bound by the terms of the lease that is in place between the lessor and lessee. When the lessor purchased the premises, they may have obtained a loan to assist in their purchase. The entity that provided the funds to the lessor is called the lessor’s mortgagee. In exchange for providing the lessor a loan to purchase the property, the mortgagee would obtain an interest over the property. Because the mortgagee has an interest over the premises, it would not be fair to make them uphold a lease agreement unknown to the mortgagee, unless the mortgagee gives their consent to be bound by the lease.
Generally, if the certificate of title lists a mortgage as an interest for your premises, then the lessor will need to obtain their mortgagee’s consent for your lease. While the lessor should make provision for obtaining mortgagee’s consent in the lease schedule, a lessee cannot be too careful as the risk of not obtaining consent is being evicted from the premises. Therefore, the lessee should always obtain a search of the title for the premises to confirm whether a mortgage is registered over the property.
How to obtain the mortgagee’s consent
Typically, the lessor will approach the mortgagee to obtain their consent once the lease has been signed by both the lessor and lessee. In order to obtain the mortgagee’s consent, the mortgagee may enforce a fee. This fee will usually cover the costs for the mortgagee to prepare the necessary titles documents to evidence their consent. The fee to pay will depend on your lender’s amount.
Risk for not obtaining the mortgagee’s consent
The lease only binds the parties to the lease – the lessor, the lessee and guarantors (if any). The mortgagee is not obliged to uphold the lease unless they provide their consent to be bound by the lease terms. This consent is essential because there is a possibility that the lessor will default under the loan agreement with the mortgagee. If this occurs, then the mortgagee may enforce their right to possess and deal with the property. This is a concern to the lessee because if the mortgagee’s consent to the lease has not been obtained, then they may terminate the lease and evict the lessee from the property in order to sell it.
Who must pay the mortgagee’s consent fees
For a retail lease, a lessor cannot make the lessee pay the mortgagee’s consent fees. This is prevented under section 48(1)(b) of the Retail Shop Leases Act 1994 (Qld). The only time the lessee may be required to pay the consent fee is if:
- the lessor prepared, at the lessee’s written request, an execution version of the lease;
- the lessee did not end up signing the lease; and
- the lessor had provided the lessee a tax invoice for the costs associated with preparing the execution version of the lease.
A lawyer can provide a great benefit by ensuring that a lessee under a retail lease does not have to pay any unnecessary costs.
A commercial lease does not have the same protection afforded to them under property legislation. Therefore, if the signed lease contains a clause requiring the lessee to pay the consent fee, then the lessee must do so. If there is no clause under the lease requiring the lessee to pay the consent fee, then the lessee is not required to do so, unless it is mutually agreed upon at a later date.
What can a lawyer do for you?
A good property lawyer will provide you with the following advantages when looking to sign a lease:
- they will obtain the relevant searches to determine whether the lessor has secured a loan over the property – this will confirm whether mortgagee’s consent is required;
- they are aware of the legislation and will be able to advise you whether it is lawful for the lessor to require the lessee to pay the mortgagee’s consent fees;
- they will be able to provide advice on the key obligations under a mortgagee’s consent clause, namely whether the lessee is required to pay the consent fee; and
- they will be able to provide advice as to how best to protect the lease after the lease is signed (i.e. registration of the lease).
If you have any questions or require assistance with drafting, renewing or drafting your lease in Queensland, please contact the property team at NB Lawyers for more information.
Kayleigh Swift, Associate
Chloe Skubis, Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.