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ARTICLE · 20 AUGUST 2007

Proposed Tax Amendments Remove Obstacle To Defeasance Transactions

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Over the past decade, the size of the Canadian commercial mortgage-backed securities ("CMBS") market has grown at a dramatic rate. It has been reported that over $4.5 billion of Canadian CMBS were issued in 2006 alone.

CanadaTax
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Over the past decade, the size of the Canadian commercial mortgage-backed securities ("CMBS") market has grown at a dramatic rate. It has been reported that over $4.5 billion of Canadian CMBS were issued in 2006 alone.

As the size of the Canadian CMBS market has expanded, the prevalence of defeasance transactions has also increased. In 2006, 37 loans were defeased, totalling over $560 million.

In the context of securitized mortgage loans, in its simplest form, defeasance is the process by which a borrower replaces real property security in respect of a particular debt obligation with personal property security. The mortgage is discharged from the real property and the borrower is free to sell or re-finance the property as it wishes. All obligations under the loan and the mortgage, other than those related to the use, operation or ownership of the real property remain in place, such as the obligation to continue to make payments under the loan. In exchange for a release of its

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