Sale and Leaseback,

Mortgage

Presented by :
Ankush Dhingra Infra -03
Ishan Sharma Infra -07
Rajinder Kumar Infra - 17
 Agenda
•What is Lease?
•Terms used in Lease
•Lease according to Transfer of property act, 1882
•Rights and liabilities of Lessor & Lessee
•Sale and Leaseback
•Possible Benefits of Sale Leaseback Funding
•Questionable Sale Leaseback Candidates
•Example
•Mortgage
•Types of Mortgage
•Right to Redeem and suit of redemption
•Situations & Steps when the mortgage can exercise
•
•
 What is Lease?
 Lease is a contractual arrangement under
which the owner of an asset (lessor) allows the
use of the asset to the user (lessee) for an
agreed period of time (lease period) in
consideration for the periodic payment (lease
rent). At the end of the lease period, the asset
reverts back to the owner, unless there is a
provision for the renewal of the lease contract.
 Terms Used
 Lessor, Lessee, Premium and
Rent
 The transferor is called the lessor,
the transferee is called the lessee, the
price is called the premium and the
money, share, service or other thing to
be so rendered is called the rent.
ACC. TO TRANSFER OF PROPERTY ACT,
1882
 A lease of immovable property is a transfer
of a right to enjoy such property, made for a
certain time, in consideration of a price paid or
promised, or of money, a share of crops, service
or any other thing of value, to be rendered
periodically or on specified occasions to the
transferor by the transferee, who accepts the
transfer on such terms. The transferor is called
the lessor, the transferee is called the lessee, the
price is called the premium, and the money,
share, service or other thing to be so rendered is
called the rent (Section 105).

ACC. TO TRANSFER OF PROPERTY ACT,
1882 CONTD.

A lease of immovable property for agricultural
or manufacturing purposes shall be deemed to be
a lease from year to year, terminable, on the part
of either lessor or lessee, by six months’ notice
and a lease of immovable property for any other
purpose shall be deemed to be a lease from
month to month, terminable, on the part of either
lessor or lessee, by fifteen days’ notice. A lease of
immovable property from year to year, or for any
term exceeding one year or reserving a yearly
rent, can be made only by a registered
instrument.

All other leases of immovable property may
be made either by a registered instrument or by
oral agreement accompanied by delivery of
possession.
Rights and liabilities of the Lessor


1.The lessor is bound to disclose to the lessee any material

defect in the property;
2.
3.The lessor is bound on the lessee’s request to put him in
possession of the property;
4.
5.If the lessee pays the rent and performs the contracts
binding on the lessee, he may hold the property during
the time limited by the lease without interruption.


 Rights and liabilities of the Lessee


1.Any material part of the property destroyed and

permanently unfit for the purposes for which it was let by
fire, or flood, or violence of an army or of a mob, the
lease shall, at the option of the lessee, be void:
2.If the lessor neglects to make, within a reasonable time
after notice, any repairs which he is bound to make to the
property, the lessee may make the same himself, and
deduct the expense of such repairs with interest from the
rent, or otherwise recover it from the lessor;
3.Bound to pay, the premium or rent to the lessor or his
agent in this behalf;
4.May remove, at any time while he is in possession of the
property leased all things which he has attached to the
earth provided he leaves the property in the state in
which he received it;
5.Must not, without the lessor’s consent, erect on the
property any permanent structure, except for agricultural
purposes;
 Sale and Leaseback


 Definition
 Leaseback, short for sale-and-leaseback,
is a financial transaction, where one sells an
asset and leases it back for a long-term: thus
one continues to be able to use the asset, but
no longer owns it.
 Sale and Leaseback Contd.
A sale-and-leaseback is typically a
commercial real estate transaction in
which one party, often a corporation,
sells its corporate real estate assets to
another party, such as an institutional
investor, or a real estate investment trust
(riet) , and then leases the property back
at a rental rate and lease term that is
acceptable to the new investor/landlord.
In a sale-and-leaseback, the lease term
and rental rate is based on the new
investor/landlord's financing costs, the
seller/lessee credit rating, and a market
rate of return based on the initial cash
Sale and Leaseback Contd.
The reasons and advantages for doing a sale-and-leaseback by a
seller/lessee are varied, but the most common are :
•
•Help finance expansion of the existing business,
purchase new plant equipment, or invest in new business
opportunities.
•Help pay down debt and improve the company's balance
sheet.
•Help reduce the seller/lessee's business income tax
liability caused by the appreciation in value (land only) of
its corporate real estate assets. In addition, the
seller/lessee as a tenant can deduct all rent payments as
a legitimate business expense on its annual tax returns.
•Tax benefits are realised by offsetting lease costs as an
operating expense.
•
Possible Benefits of Sale
Leaseback Funding
Accretion: A sale-leaseback transaction
maybe mildly accretive for the business in
the near term.
As a Funding Source, Leaseback financing
(Lease) usually has less reporting &
operating restrictions than bank debt.
In troubled times a real estate investor
maybe easier to work with than a bank.
 Questionable Sale Leaseback
Candidates
 Real Estate that would be a Challenging Investment
regardless of the Tenant:
 Environmental Issues
 Title Issues
 In Need of Significant Capital Improvements to Remain
Serviceable
 Easements Need to be Renegotiated
 Businesses with Volatile Revenue & Cash Flow
 Businesses with Variable & Large Maintenance
Requirements
 Businesses with Large Working Capital or Seasonal
Working Capital Needs
 Businesses that have Employed Too Much Leverage
 Businesses that are Not Well Run/Run to the Detriment
of Other Stakeholders
 Businesses in Industries/Markets that are Undergoing
Significant Changes
 Using property for
cash
 The insatiable need for capital for many
companies, whether for organic growth or
growth by acquisition, has brought the sale and
leaseback of commercial real estate well and
truly back into the spotlight as a practical and
increasingly popular corporate finance tool. --
Sale and leaseback takes the spotlight, REPORT
BY KPMG
 Example - IBM
 IBM in late 2005 started the long-term pruning of its
owned property book with the sale and leaseback of four of its
five remaining owned sites in the UK:

 North Harbour in Portsmouth, Warwick, Greenford and
Greenock, in Scotland. After the completion of this transaction
at the end of the year, it now has just one owned site left in the
UK, its Hursley software laboratory.


 “There are three principal driving forces behind the

policy,” explains Nick Goude, Regional Consultancy Services
Manager of IBM Real Estate.


 “One, it’s a way of divesting surplus capacity. We didn’t do

100 percent leaseback, so it’s a major resizing of the
portfolio.
 Two, it reduces the operating costs of the business going
forward.
 Three, we can book cash and profit up front and that cash
reinvested in the business is put to better use than if it
were still in property.”
Mortgage
Mortgage:-
As per Section 58 of Transfer of Property Act
Mortgage means:


 Mortgage is a transfer of an interest in a

specific immovable property for the
purpose of securing the payment of
money advanced or to be advanced by
way of loan, an existing or future debt or the
performance of an agreement, which may
give rise to a pecuniary liability.
Mortgagor
The person borrowing and transferring his
interest in an immovable property to the
lender is the mortgagor.


Mortgagee


The lender is the mortgagee.

Mortgage Money:-


 The funds lent against which the property is

used as security is the mortgage money.


Mortgage-deed:-


The instrument by which the transfer is

effected is called a mortgage-deed.

Types of Mortgages
Simple mortgage:-


Without delivering possession of the

mortgaged property, the mortgagor binds
himself personally to pay the mortgage-
money, and agrees, expressly or
impliedly, that in the event of his failing to
pay according to his contract, the
Mortgagee shall have a right to cause
the mortgaged property to be sold for
satisfaction of the mortgaged debt.
Conditional mortgage:-


The mortgagor presumably sells the

mortgaged property on condition that on
default of payment of mortgage money
on a certain date, the sale shall become
absolute or on condition that on such
payment being made the sale shall
become void or on condition that on such
payment being made the buyer shall
transfer the property to the seller.
Usufructuary mortgage:-


The mortgagor delivers possession or

expressly or by implication binds himself to
deliver possession of the mortgaged
property to the mortgagee and authorizes
him to retain such possession until
payment of the mortgage-money.
The mortgagee is allowed to receive the
rents and profits accruing from the property
or any part of such rents and profits and to
appropriate the same in lieu of interest or in
payment of the mortgage money, or partly
in lieu of interest or partly in payment of the
mortgage money.
English mortgage:-


The mortgagor binds himself to repay the

mortgage-money on a certain date, and
transfers the mortgaged property
absolutely to the mortgagee, but subject to
a provision that he will re-transfer it to the
mortgager upon payment of the mortgage-
money as agreed.
FIXED RATE MORTGAGE


A fixed rate mortgage is a mortgage in which

the interest rate remains the same over the
life of the loan.
This type of mortgage is often viewed as the
most low-risk
allows people to make better budgeting
decisions
protect borrowers from increases in
interest rates

Right to redeem and suit
of redemption
After making the entire payment of the loan
amount, the mortgagor has a right to require
the Mortgagee to deliver the mortgage deed
and other title deeds and if the Mortgagee is
in possession of the mortgaged property, to
deliver possession thereof either to back to
the mortgagor or such third person as he
may direct. Such a right is called right to
redeem and a suit to enforce is called a suit
of redemption.
mortgagee can exercise
the right to sell
the property
A mortgagee can exercise his power to sell the


mortgaged property, in default of payment of the

mortgage-money without the intervention of the
court in the following cases:
Where the mortgage is an English mortgage
Where a power of sale without the intervention of
the court is expressly conferred on the
mortgagee by the mortgage deed and the
mortgagee is the government.
Where a power of sale without the intervention of
the court is expressly conferred upon the
mortgagee by the mortgage deed and the
mortgaged property is situated within the town
which the State Government may, by
mortgagee can exercise
right to sell the
property
The mortgagee has served a notice in writing
requiring payment of the principal money to
the mortgagor, or one of the several
mortgagors, and default has been made in
payment of the principal money, or of part
thereof, for three months after such
service; or
Some interest under the mortgage amounting
at least to five hundred rupees is in
arrears and unpaid for three months
after becoming due.
MORTGAGE BROKER

Often, people confuse mortgage brokers with

lenders.
mortgage broker is a loan provider who serves
as a liaison between borrowers and lenders.
a mortgage broker will provide basic
credit counseling in an attempt to assist
borrowers with correcting credit issues.
Brokers answer questions and assist
borrowers in understanding both the
application process and loan details as well.
Some of the well-known mortgage-financing
companies offering various types of mortgage in
India are as follows –
LIC Housing Finance
HDFC
ICICI Home Finance
SBI Housing Finance
UCO Bank
State Bank of India
State Bank of Mysore
Allahabad Bank
United Bank of India
United Commercial Bank of India
Bank of Baroda
Kotak Mahindra Bank
Citi Bank
HSBC
Standard Chartered Bank