CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Acquisitions of commercial real estate are typically financed through mortgage debt provided by financial institutions such as banks, insurers, trust companies, pension funds, credit unions and other entities that lend money in the ordinary course of business. Some companies may also be able to utilise equity financing or (in the case of larger companies) corpo - rate-level financing to fund acquisitions of real estate. 3.2 Typical Security Created by Commercial Investors Real estate financing is commonly secured by grant - ing a mortgage and a general assignment of rents and leases (an immovable hypothec in Quebec), of the borrower’s interest in the subject real estate, along with a general security agreement (a movable hypothec in Quebec), with respect to the borrower’s personal property. These security interests are cre - ated by the execution of security documents and are perfected by registration in the applicable land title and personal property registries. Lenders may also require additional security, such as an assignment of contracts, or third-party indemnities or guarantees. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Although any person may lend money and take a mortgage (hypothec in Quebec) to secure real estate loans, certain financial institutions are regulated by statute, with special provisions applying to foreign financial institutions, and mortgage brokerage leg - islation applying to lending on the security of real property in several provinces. For the registration of security, certain land title registries require foreign lenders to provide evidence of their existence and good standing. Others require foreign lenders to be extra-provincially registered with the provincial corpo - rate registry or otherwise regulated by certain federal legislation in order to take security over real property in the province. Although mortgage interests may be exempt from restrictions on foreign ownership of land, the act of realising upon security (or the ownership of the affected land for a period of time after realising
upon security) may contravene such restrictions or result in a period of time in which the property must be disposed of. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Nominal registration fees apply to the registration of a mortgage, an assignment of rents, a hypothec or any other registered real property security. Apart from typical legal and other enforcement costs, there are no specific registration fees payable in con - nection with the enforcement of security over real property. 3.5 Legal Requirements Before an Entity Can Give Valid Security While giving financial assistance has traditionally been legally restricted or prohibited, many Canadian jurisdictions have recently eased or eliminated the requirements. However, legislation in some provinces still contains express disclosure and reporting require - ments. Even where financial assistance is not directly prohibited or restricted by statute, directors must observe their fiduciary duty to act in the best inter - est of the corporation when approving such arrange - ments. In addition, when dealing with non-individuals (ie, corporations, trusts, partnerships), the organisational documents may contain restrictions or limitations on certain activities. 3.6 Formalities When a Borrower Is in Default Available Remedies In the common-law provinces, remedies for mortgage lenders generally include foreclosure, action on the covenant, appointment of a receiver, judicial sale, power of sale and possession. Power of sale is a sale of the mortgaged property by the mortgage lender without court proceedings or supervision, pursuant to either the provisions of the mortgage which expressly grant the lender the power to sell the mortgaged prop - erty upon default, or the applicable mortgage legis - lation (a power of sale is not available as a remedy in all common-law provinces). In Quebec, analogous remedies include a personal right of action against the debtor, as well as the hypothecary rights of taking in
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