Sale Leaseback & Mortgage

8/9/2019 Sale Leaseback & Mortgage

1/30

Sale and Leaseback,

Mortgage

:resented by-Ankush Dhingra Infra 03

-Ishan Sharma Infra 07

-Rajinder Kumar Infra 17


2/30

AgendaWhat is Lease?Terms used in LeaseLease according to Transfer of property act, 1882Rights and liabilities of Lessor & LesseeSale and LeasebackPossible Benefits of Sale Leaseback Funding

Questionable Sale Leaseback CandidatesExampleMortgageTypes of MortgageRight to Redeem and suit of redemptionSituations & Steps when the mortgage can exercise


3/30

Lease is a contractual arrangement underwhich the owner of an asset (lessor) allows theuse of the asset to the user (lessee) for anagreed period of time (lease period) inconsideration for the periodic payment (leaserent). At the end of the lease period, the assetreverts back to the owner, unless there is aprovision for the renewal of the lease contract.

What is Lease?


4/30

Lessor, Lessee, Premium andRent

The transferor is called the lessor,the transferee is called the lessee, theprice is called the premium and themoney, share, service or other thing to

be so rendered is called the rent.

Terms Used


5/30

A lease of immovable property is a transferof a right to enjoy such property, made for acertain time, in consideration of a price paid or

promised, or of money, a share of crops, serviceor any other thing of value, to be renderedperiodically or on specified occasions to thetransferor by the transferee, who accepts thetransfer on such terms. The transferor is called

the lessor, the transferee is called the lessee, theprice is called the premium, and the money,share, service or other thing to be so rendered iscalled the rent (Section 105).

ACC. TO TRANSFER OF PROPERTY ACT,1882


6/30

A lease of immovable property for agriculturalor manufacturing purposes shall be deemed to bea lease from year to year, terminable, on the partof either lessor or lessee, by six months notice

and a lease of immovable property for any otherpurpose shall be deemed to be a lease frommonth to month, terminable, on the part of eitherlessor or lessee, by fifteen days notice. A lease ofimmovable property from year to year, or for anyterm exceeding one year or reserving a yearlyrent, can be made only by a registeredinstrument.

All other leases of immovable property maybe made either by a registered instrument or byoral agreement accompanied by delivery ofpossession.

ACC. TO TRANSFER OF PROPERTY ACT,

1882 CONTD.


7/30

1.The lessor is bound to disclose to the lessee any materialdefect in the property;

2.

3.The lessor is bound on the lessees request to put him inpossession of the property;

4.

5.If the lessee pays the rent and performs the contractsbinding on the lessee, he may hold the property duringthe time limited by the lease without interruption.

Rights and liabilities of the Lessor


8/30

1.Any material part of the property destroyed andpermanently unfit for the purposes for which it was let byfire, or flood, or violence of an army or of a mob, thelease shall, at the option of the lessee, be void:

2.If the lessor neglects to make, within a reasonable timeafter notice, any repairs which he is bound to make to theproperty, the lessee may make the same himself, anddeduct the expense of such repairs with interest from therent, or otherwise recover it from the lessor;

3.Bound to pay, the premium or rent to the lessor or hisagent in this behalf;

4.May remove, at any time while he is in possession of theproperty leased all things which he has attached to theearth provided he leaves the property in the state inwhich he received it;

5.Must not, without the lessors consent, erect on theproperty any permanent structure, except for agricultural

purposes;

Rights and liabilities of the Lessee


9/30

Sale and Leaseback

Definition Leaseback, short for sale-and-leaseback,

is a financial transaction, where one sells anasset and leases it back for a long-term: thusone continues to be able to use the asset, butno longer owns it.


10/30

A sale-and-leaseback is typically acommercial real estate transaction inwhich one party, often a corporation,sells its corporate real estate assets to

another party, such as an institutionalinvestor, or a real estate investment trust(riet) , and then leases the property backat 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 newinvestor/landlord's financing costs, the

seller/lessee credit rating, and a marketrate of return based on the initial cash

Sale and Leaseback Contd.


11/30

The reasons and advantages for doing a sale-and-leaseback by aseller/lessee are varied, but the most common are :

Help finance expansion of the existing business,

purchase new plant equipment, or invest in new businessopportunities.Help pay down debt and improve the company's balancesheet.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, theseller/lessee as a tenant can deduct all rent payments asa legitimate business expense on its annual tax returns.Tax benefits are realised by offsetting lease costs as anoperating expense.

Sale and Leaseback Contd.


12/30

Possible Benefits of Sale

Leaseback FundingAccretion: 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 investormaybe easier to work with than a bank.


13/30

Questionable Sale Leaseback

Candidates Real Estate that would be a Challenging Investment

regardless of the Tenant:Environmental IssuesTitle Issues

In Need of Significant Capital Improvements to RemainServiceableEasements Need to be RenegotiatedBusinesses with Volatile Revenue & Cash FlowBusinesses with Variable & Large Maintenance

RequirementsBusinesses with Large Working Capital or Seasonal

Working Capital NeedsBusinesses that have Employed Too Much LeverageBusinesses that are Not Well Run/Run to the Detriment

of Other StakeholdersBusinesses in Industries/Markets that are Undergoing

Significant Changes


14/30

Using property for

cash The insatiable need for capital for many

companies, whether for organic growth orgrowth by acquisition, has brought the sale and

leaseback of commercial real estate well andtruly back into the spotlight as a practical andincreasingly popular corporate finance tool. --Sale and leaseback takes the spotlight, REPORT

BY KPMG


15/30

Example - IBM IBM in late 2005 started the long-term pruning of its

owned property book with the sale and leaseback of four of itsfive remaining owned sites in the UK:

North Harbour in Portsmouth, Warwick, Greenford andGreenock, in Scotland. After the completion of this transaction

at the end of the year, it now has just one owned site left in theUK, its Hursley software laboratory.

There are three principal driving forces behind thepolicy, explains Nick Goude, Regional Consultancy ServicesManager of IBM Real Estate.

One, its a way of divesting surplus capacity. We didnt do100 percent leaseback, so its a major resizing of theportfolio.

Two, it reduces the operating costs of the business goingforward.

Three, we can book cash and profit up front and that cash

reinvested in the business is put to better use than if itwere still in property.


16/30

Mortgage


17/30


18/30

Mortgage:-

As per Section 58 of Transfer of Property ActMortgage means:

Mortgage is a transfer of an interest in a

specific immovable property for thepurpose of securing the payment ofmoney advanced or to be advanced byway of loan, an existing or future debt or theperformance of an agreement, which maygive rise to apecuniary liability.


19/30

Mortgagor

The person borrowing and transferring hisinterest in an immovable property to thelender is the mortgagor.

Mortgagee

The lender is the mortgagee.


20/30

Mortgage Money:-

The funds lent against which the property isused as security is the mortgage money.

Mortgage-deed:-

The instrument by which the transfer is

effected is called a mortgage-deed.


21/30

Types of MortgagesSimple mortgage:-Without delivering possession of the

mortgaged property, the mortgagor bindshimself personally to pay the mortgage-money, and agrees, expressly orimpliedly, that in the event of his failing topay according to his contract, theMortgagee shall have a right to causethe mortgaged property to be sold forsatisfaction of the mortgaged debt.


22/30

Conditional mortgage:-The mortgagor presumably sells the

mortgaged property on condition that ondefault of payment of mortgage moneyon a certain date, the sale shall becomeabsolute or on condition that on such

payment being made the sale shallbecome voidor on condition that on such

payment being made the buyer shalltransfer the property to the seller.


23/30

Usufructuary mortgage:-The mortgagor delivers possession or

expressly or by implication binds himself to

deliver possession of the mortgagedproperty to the mortgagee and authorizeshim to retain such possession untilpayment of the mortgage-money.

The mortgagee is allowed to receive the

rents and profits accruing from the propertyor any part of such rents and profits and toappropriate the same in lieu of interest or inpayment of the mortgage money, or partlyin lieu of interest or partly in payment of the

mortgage money.


24/30

English mortgage:-

The mortgagor binds himself to repay themortgage-money on a certain date, andtransfers the mortgaged propertyabsolutely to the mortgagee, but subject toa provision that he will re-transfer it to themortgager upon payment of the mortgage-

money as agreed.


25/30

FIXED RATE MORTGAGE

A fixed rate mortgage is a mortgage in whichthe interest rate remains the same over thelife of the loan.

This type of mortgage is often viewed as themost low-risk

allows people to make better budgetingdecisions

protect borrowers from increases ininterest rates
http://www.wisegeek.com/what-is-a-mortgage.htmhttp://www.wisegeek.com/what-is-a-good-interest-rate-on-a-credit-card.htmhttp://www.wisegeek.com/what-is-budgeting.htmhttp://www.wisegeek.com/what-is-an-interest-rate.htmhttp://www.wisegeek.com/what-is-an-interest-rate.htmhttp://www.wisegeek.com/what-is-budgeting.htmhttp://www.wisegeek.com/what-is-a-good-interest-rate-on-a-credit-card.htmhttp://www.wisegeek.com/what-is-a-mortgage.htm


26/30

Right to redeem and suit

of redemptionAfter making the entire payment of the loan

amount, the mortgagor has a right to requirethe Mortgagee to deliver the mortgage deed

and other title deeds and if the Mortgagee isin possession of the mortgaged property, todeliver possession thereof either to back tothe mortgagor or such third person as he

may direct. Such a right is called right toredeem and a suit to enforce is called a suitof redemption.

mor gagee can exerc se


27/30

mor gagee can exerc sethe right to sell

the propertyA mortgagee can exercise his power to sell the

mortgaged property, in default of payment of themortgage-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 ofthe court is expressly conferred on themortgagee 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 themortgagee by the mortgage deed and themortgaged property is situated within the townwhich the State Government may, by

mor gagee can exerc se


28/30

mor gagee can exerc seright to sell the

propertyThe mortgagee has served a notice in writing

requiring payment of the principal money tothe mortgagor, or one of the several

mortgagors, and default has been made inpayment of the principal money, or of partthereof, for three months after suchservice; or

Some interest under the mortgage amountingat least to five hundred rupees is inarrears and unpaid for three monthsafter becoming due.


29/30

MORTGAGE BROKER

Often, people confuse mortgage brokers withlenders.

mortgage broker is a loan provider who servesas a liaison between borrowers and lenders.

a mortgage broker will provide basiccredit counseling in an attempt to assistborrowers with correcting credit issues.

Brokers answer questions and assistborrowers in understanding both theapplication process and loan details as well.
http://www.wisegeek.com/what-is-a-mortgage.htmhttp://www.wisegeek.com/what-is-a-lender.htmhttp://www.wisegeek.com/what-is-credit-counseling.htmhttp://www.wisegeek.com/what-is-credit-counseling.htmhttp://www.wisegeek.com/what-is-a-lender.htmhttp://www.wisegeek.com/what-is-a-mortgage.htm


30/30

Some of the well-known mortgage-financingcompanies offering various types of mortgage inIndia are as follows

LIC Housing Finance

HDFCICICI Home FinanceSBI Housing FinanceUCO BankState Bank of IndiaState Bank of MysoreAllahabad BankUnited Bank of India

United Commercial Bank of IndiaBank of BarodaKotak Mahindra BankCiti BankHSBCStandard Chartered Bank

Sale Leaseback & Mortgage

Documents

Transcript of Sale Leaseback & Mortgage