Taking Security Over JTC Leases With An Option For Lease Extension – Issues And Solutions

It is common for JTC Corporation ("JTC") to grant leases for an initial lease term, with an option for a further lease term upon the satisfaction of certain conditions. This client update explains the issues that a financing bank may encounter when taking security over such leases and the possible solutions that may be adopted.

The Issues

A mortgage is commonly taken by a bank over the initial JTC lease.

The mortgage only secures the initial JTC lease. Two issues to consider upon the expiry of the initial JTC lease are:

(a) Security over the further JTC lease

Upon the expiry of the initial JTC lease, the mortgage will correspondingly lapse as well, as it only secures the initial JTC lease. The mortgage will not automatically secure the further JTC lease upon its issuance. Further security documentation and steps are required for the bank to have security over the further JTC lease; and

(b) The gap period between the expiry of the initial JTC lease and issuance of the...