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A beneficial interest is an individual’s right to benefit
from assets held by someone else. With respect to real property, it
is imperative for a lender to ensure that the consent of the
beneficial owner of the subject property as well as a charge of
such beneficial interest is obtained. We have previously discussed
the difference between registered and beneficial ownership
interests in real property.
Where a borrower owns or is purchasing a partial beneficial
interest in a property, for example through a co-ownership, and
taking a loan only for such interest or purchase, the lender has
A borrower can create its own nominee, to be registered on
title, to hold its interest in the real property along the other
co-owner’s nominee. This would allow the lender to then take a
mortgage against the borrower’s interest in the property only
(from the borrower’s nominee) and its beneficial interest.
Where, this is not available, the alternative is for the lender
to take a charge on the borrower’s beneficial interest in the
property (which is not registered on title) with a PPSA
registration and, if possible, a pledge of the borrower’s share
in the nominee on title.
In either situation, the lender would enter into an agreement
with the other co-owner setting out rights on default by the
borrower. In the event of a default, the lender would typically
want the ability to sell the borrower’s interests and the
co-owner would want the ability to cure default and/or approve
whether any new buyer or owner are acting reasonably. To ensure the
agreement is enforceable, one would need to confirm that the lender
received notice of the borrower defaulting under the co-owners
agreement, ensuring there are no penalties/rights of the co-owner
to purchase the borrower’s interest on default without the
lender having the first right to enforce. A PDF version is
available to download
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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