Innovations in the law of lending : a study of the participation mortgage and a proposal for reform of the law of commercial mortgages


University of British Columbia

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Document Type



Master of Laws - LLM




The period of high inflation during the late 1970s and early 1980s forced lenders to reconsider their methods of financing commercial real estate projects. During this period, lenders began experimenting with various new forms of mortgage documentation designed to support innovative financing techniques. Many of the innovative techniques developed included a participation feature whereby the lender, in addition to earning a fixed rate of interest, also participated in either the income from a project or the increased value in its equity, or both. As a result of instituting these techniques, both lenders and developers expanded their view of what a commercial mortgage entails. It is unlikely that lenders will return to viewing their role as that of simple renters of money. Since the law of mortgages in Canada has not been sufficiently flexible to adequately accommodate these innovative techniques, there is a need for reform of the law of commercial mortgages. In this paper, the writer will review the current commercial lending practices and discuss the advantages and disadvantages of the most commonly used forms of participation financing. The conclusion will set out a proposal for the reform of the law of commercial mortgages. Central to its recommendations will be the concept that the commercial mortgage should be regarded as a contract for a debt and not as a conveyance of an interest in property. This concept will allow the commercial lender and borrower the contractual freedom to enter into the bargain that best reflects their financing intentions without being hampered by the historical incidents of a common law mortgage.


Mortgages -- Canada; Real estate development -- Finance

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