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REAL ESTATE LAW

What is a deed of trust with assignment of rents.

By Rebecca K. McDowell, J.D.

February 24, 2020

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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• What Is a Corporate Assignment of Deed of Trust?

A deed of trust is a written instrument granting a lien on real property. While slightly different from a mortgage, they are functionally nearly the same. Some states use deeds of trust instead of mortgages while others allow both. Either way, a deed of trust used to secure a commercial loan may also include an assignment of rents , which gives the lender the right to collect rental income from the property in the event of default.

What Is a Deed of Trust?

A ​ deed of trust ​ is a document that a borrower may execute in favor of a lender to give the lender a lien on a parcel of real estate. Like a mortgage, a deed of trust secures the loan by allowing the lender to foreclose on the real estate if the loan isn't paid (although in some states that use deeds of trust, a foreclosure isn't necessary).

​ Read More: ​ How to Research a Deed of Trust

Deed of Trust vs. Mortgage

A deed of trust is very similar to a mortgage in that it pledges property to secure a loan. A mortgage, however, is simpler; the property owner executes a mortgage document in favor of the lender, and the lender records the mortgage and has a lien , but the property owner still holds title to the property.

A deed of trust, on the other hand, grants an actual ownership interest in the property to a trustee, who holds the property in trust for the lender until the obligation is paid.

What Is an Assignment of Rents?

An ​ assignment of rents ​ is extra security granted to a lender that provides a commercial loan. Commercial loans are loans that are not made for family or household use but for business purposes.

When a borrower grants a mortgage or deed of trust on real estate and the real estate has tenants who pay rent, the lender can demand an assignment of rents in addition to the mortgage or deed of trust.

The assignment of rents means that if the borrower defaults on the loan, the lender can step in and collect the rents directly from the tenants.

Deed of Trust With Assignment of Rents

A deed of trust may contain an assignment of rents clause for that same property. In addition to a clause in the deed of trust, the lender may also require the borrower to execute a separate document called an "Assignment of Rents" that is recorded with the register of deeds.

Whether the assignment is written in the deed of trust only or is also contained in a separate document, it is binding on the borrower as long as its language is clear and sufficient to create an assignment under state law.

Exercising an Assignment of Rents

When a lender decides to collect the rents on the borrower's property, the lender is said to be exercising the assignment of rents. The lender cannot exercise the assignment unless the borrower has defaulted on the loan. Once that happens, the lender can send a written demand to the tenant or tenants, requiring that the rents be paid directly to the lender.

Absolute Assignments of Rents

An assignment of rents most likely will contain language that the assignment is an ​ absolute assignment ​. In most states, an absolute assignment gives the lender an immediate interest in the rents. This means that the lender actually owns the rents and is simply allowing the borrower to collect them on license until an event of default. Once a default occurs, the lender can intercept the rents without taking any court action; a letter to the tenants is all that's needed.

Every state's laws are different; the law of the state where the property is located will dictate how a lender can exercise an assignment of rents.

​ Read More: ​ What Is the Difference Between a Deed and a Deed of Trust?

• Companies Incorporated: Mortgage States and Deed of Trust States
• American Bar Association: Commercial Real Estate FAQs
• Schulte Roth & Zabel: Sixth Circuit Upholds Assignment of Rents to Secured Lender
• Findlaw: California Civil Code - CIV § 2938
• Legal Beagle: What Is the Difference Between a Deed and a Deed of Trust?
• Legal Beagle: How to Research a Deed of Trust
• Legal Beagle: Documents Needed to Refinance a Mortgage
• Legal Beagle: How to File a Property Lien

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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• What is an assignment of rents?

by Brian D. Moreno, Esq., CCAL | General Real Estate Law , Homeowners Association

With the collection of assessments, community associations are always looking for creative ways to increase the chance of recovery.  One underutilized remedy that may provide associations good results is an assignment of rents.  If an owner-landlord fails to pay HOA assessments but continues to collect rent payments from his or her tenant, the association should consider rent assignment.  There are prejudgment and post-judgment rent assignment remedies that can be pursued with regard to the delinquency.  A post-judgment rent assignment can be pursued by way of a request to the court after a Judgment is entered against the owner-landlord.

A prejudgment rent assignment can be pursued even before filing a lawsuit if executed properly.  In California, Civil Code Section 2938 regulates the formation and enforcement of the assignment of rents and profits generated by a lease agreement relating to real property.  It provides that “[a] written assignment of an interest in leases, rents, issues, or profits of real property made in connection with an obligation secured by real property. . .shall, upon execution and delivery by the assignor, be effective to create a present security interest in existing and future leases, rents, issues, or profits of that real property. . . .”   Once a written assignment of rents is properly authorized and formed, the law creates a security interest (i.e., lien) against the rents and profits paid by a tenant. 

The question then is whether the association’s CC&Rs, by itself, creates an assignment of the right to a tenant’s rent payment in favor of the association.  Indeed, section 2938(b) provides that the assignment of an interest in leases or rent of real property may be recorded in the same manner as any other conveyance of an interest in real property, whether the assignment is in a separate document or part of a mortgage or deed of trust.  Since a homeowners association’s CC&Rs is a recorded document and contains covenants, equitable servitudes, easements, and other property interests against the development, it follows that the assignment of rents relief provided in Section 2938(b) can be extended to community associations provided the CC&Rs contains an appropriate assignment of rents provision.

Section 2938, however, does not clarify whether the CC&Rs document on its own creates a lien and enforceable assignment right.  Moreover, a deed of trust is much different than a set of CC&Rs, in that the deed of trust creates a lien against the trustor’s property upon recordation, while a homeowners association would not have a lien until an owner becomes delinquent with his or her assessments and the association records an assessment lien against the property.  Therefore, depending on the scope of the assignment of rents provision in the CC&Rs, a homeowners association would likely need to record an assessment lien first before pursuing rents from a tenant.  Moreover, even after a lien is recorded, homeowners associations should consider adding a provision in the assessment lien giving notice to the delinquent owner that an assignment right is in effect upon recordation of the assessment lien.  Nevertheless, association Boards should consult with legal counsel to ensure proper compliance with the law.

Once the assignment right becomes enforceable, the next issue is how the Association can and should proceed.  Section 2938(c)(3) allows the association to serve a pre-lawsuit demand (a sample of which is included in the statute) on the tenant(s), demanding that the tenant(s) turn over all rent payments to the association.  This can be a powerful tool for homeowners associations.  Moreover, if the tenant complies, the association will receive substantial monthly payments that can be applied towards the assessment debt, and collecting the funds does not appear to preclude the association from pursuing judicial or non-judicial foreclosure proceedings at a later time.

While homeowner associations have the option of pursuing a lawsuit against the delinquent owner and seeking to collect the rent payments after a judgment has been obtained, there are obvious advantages to enforcing the assignment of rents provision prior to pursuing litigation.  A pre-lawsuit assignment of rents demand may prove to be more effective and cheaper.  Additionally, the tenant affected by the assignment of rents demand may place additional pressures on the delinquent owner/landlord having received such a demand.  Given this, the options available pursuant to Section 2938, including the pre-lawsuit demand for rents, should at least be considered and analyzed before action is taken.

Truly, the initial pre-lawsuit demand for rents may persuade the landlord-owner to resolve the delinquency with the association in the face of the potential disturbance of the landlord-tenant relationship.  Even if the tenant fails to comply with the demand and/or the owner fails to bring the account current, the association could nonetheless pursue foreclosure remedies and/or seek to have a receiver appointed to specifically enforce the assignment of rents provision.

In sum, if a delinquent homeowner is leasing the property to a tenant, the homeowners association should consider making a pre-lawsuit demand for rent payments.  If the association’s CC&Rs does not contain an assignment of rents provision, the board of directors should consider amending the CC&Rs to include an appropriate provision.  Without question, the pre-lawsuit demand for rents could provide an excellent opportunity for recovery of unpaid assessments during these difficult economic times.

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Assignment of Rents & Leases

Assignment of rents and leases in business and real estate transactions.

An “Assignment of Rents and Leases” is a crucial legal instrument that significantly impacts commercial and residential real estate, and mergers and acquisitions of real estate. Having a properly drafted and executed assignment means the rights and assets that are transferred give the new party (the assignee) the right to receive payments.

What is an assignment of rents and leases?

An assignment of rents and leases is a legal agreement in which the individual or company entitled to receive payments transfers that right to another party. Most often, this occurs (1) when a property owner hires a property manager, or (2) in acquisitions, such as a property management company selling their accounts to another property management company or a commercial landlord selling their portfolio to a buyer.

How is an assignment of rents and leases used?

This arrangement is often utilized in business sales, account sales, financing, and investment transactions as a means of securing debt or protecting the interests of the lender or property owner.

In the financing context, an assignment often grants the lender or assignee the authority to collect and apply the rents from the property should the borrower default on their loan; this is important when the borrower collateralizes real estate in order to receive the loan. In a property management context, an assignment often serves to effectively transfer management rights to the new company.

An assignment of rents and leases is probably most commonly used in a commercial real estate context when there is a sale of a commercial property, or in the residential real estate context when there is a change in property managers.

What terms should be included in an assignment of rents and leases?

Certain components should be included in a proper assignment. Here are a few of the foundational terms for an assignment of rents and leases:

• Parties. All parties should be clearly identified and defined. This can include the borrower, lender, assignee, assignor, successor, etc.
• Property description. The real estate parcel(s) involved in the assignment should be described by legal description, street address, and more.
• Lease terms, rents, and disclosures. The actual lease agreements that are being transferred to the new landlord, property manager, lender, etc. should be provided to the assignor/successor, along with an easy-to-read schedule of rents and other crucial details per parcel or premises.
• Rights and obligations. Each party should have their rules, permissions, and contractual rights and obligations outlined in the assignment language. The rights and obligations of each stakeholder will be widely varied based on the needs and financial position of each party, the existing leases being assigned, and the specifics of the subject properties.

Best Commercial Real Estate Attorneys in Oklahoma

It is crucial to engage an attorney with experience in properly negotiating, drafting, and executing assignments of rents and leases. They can guide you through the process, ensuring that the assignment is tailored to your specific needs and complies with all relevant legal requirements. The attorneys of Avenue Legal Group have the experience you need and want in your transaction. Contact our firm to discuss your transaction, assignment of rents and leases, or other real estate documentation.

Looking for local counsel in Oklahoma for your commercial real estate transaction? Our firm frequently works with attorneys, investors, and lenders from outside the state. Contact us by call, text, email, or website submission to discuss your matter.

Other helpful information:

• Commercial Real Estate Transactions in Oklahoma
• Due Diligence in Oklahoma Real Estate Transactions
• Essential Terms for Every Commercial Lease
• Attorney for Real Estate Contract Review
• Estate Planning
• Real Estate and Investing

Have Questions?

• What is an Assignment of Rents?

WHAT IS AN ASSIGNMENT OF RENTS?

An assignment of rent is a binding contract between a lender and a borrower stipulating that in the event the borrower defaults on the mortgage, the lender will be entitled to collect any rent payments made by a tenant occupying the property. If the lender is aware that the borrower intends to use the mortgaged property as a rental property, the lender may include an assignment of rents clause in the mortgage agreement to further protect its interest. A lender may choose to enter a general assignment of rents or a specific assignment of rents.

In a general assignment of rents, the agreement is binding on all future leases. A specific assignment of rents is only binding on the specific parties listed in the agreement. In the context of a real estate transaction, an assignment of rents, whether general or specific, may be registered on title. An assignment of rent may also be registered under the Personal Property Security Act as a secured interest. An assignment of rents is typically only deleted from the title when the corresponding mortgage is discharged and paid in full.

Contact us if you require legal assistance with your real estate transaction. Our real estate law team has the experience and knowledge to assist you throughout every step of the transaction.

Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here .

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Assignment of Rents in Residential Real Estate Transactions

When discussing a mortgage product with your broker, you will be required to disclose certain information so that the mortgage may be crafted in accordance with your specific needs. As part of this task, you will be required to disclose whether the property will be your primary residence or an investment. Where borrowers own a property that is or may be leased in the future, most lenders will require that either a general assignment of rents or a specific assignment of rents be secured against the borrower’s property in addition to the secured mortgage.

In most cases, lenders will have borrowers execute the general or specific assignment of rents in a form of a separate document however, some lenders choose to incorporate an assignment of rents clause within the mortgage agreement itself. Even if the mortgage document is silent about assigning rents, the lender’s right to receive rental income will be inserted into the mortgage as incidents of ownership (the retainment of the right to collect rent). Both the general and specific assignment of rents provide a degree of financial protection for a lender as both entitle them to collect rental income from the borrower’s tenant(s) if the borrower defaults on the mortgage.

The specific assignment of rents applies where the lender is only interested in a specific lease(s). This arrangement may be appropriate in situations where a property has one tenant under a long-term lease or where multiple lenders are taking security in a particular property and wish to divide specific leases and income derived from each. Once such a lease(s) expires or terminates, the lender will no longer be entitled to any rental income from subsequent new leases.

On the opposite end of the spectrum is the general assignment of rents . Once implemented, not only does it give the lender the right to rental income from current or future tenants and leases but it also provides the lender with the ability to exercise all of the rights of a landlord under any prevailing or new leases, assignments, or subleases. This type of arrangement is a more popular choice with lenders as it provides synoptic security.

Like a mortgage, both general and specific assignment of rents are usually registered against title to a property as a notice under s. 78 of the Land Titles Act [1] .

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me at [email protected] .

[1] R.S.O. 1990, c. L.5

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Securing Interests: Navigating the Intricacies of Assignment of Rents in California Real Estate

Article by:

Steven e. ernest, esq., share this post:.

• November 23, 2023

Your borrower has an income generating property (generally tenants who are paying monthly rent) and is (presumably) collecting it. He isn’t paying you, though. Where is the money going? You ask, and he tells you ghost stories about Wimpy paying for a cheeseburger on Tuesday, but Tuesday never comes. What can you do? As with all things litigation, folks respond to one thing – pressure. You need to gain leverage on him and make it easier for the borrower to do what you want him to do (pay) than it is for him to do what he wants to do (not pay). Gaining that leverage typically requires a lawsuit.

So, sue him! Get a receiver appointed and have the rent paid to you. Suppose that will get the attention of your borrower? I do as well.

I write today to provide a detailed overview of the concept of Assignment of Rents as it pertains to real estate holdings in California. This is a significant aspect for both lenders and property owners, and understanding its implications is crucial for informed decision-making.

1. Definition and Purpose:

Assignment of Rents is a legal mechanism used in real estate where a property owner assigns their right to collect rents from the property to a lender as security for a loan. This arrangement is particularly common in commercial real estate transactions. The primary purpose is to provide additional security to the lender; in the event of a default, the lender has the right to collect rents directly from tenants.

2. Legal Framework in California:

In California, the Assignment of Rents is governed by the California Civil Code § 2938. The statute outlines the conditions and procedures under which rents may be assigned and the rights of both the lender and borrower in such scenarios. It is essential to understand this law balances the interests of lenders, borrowers, and tenants.

3. Activation of Assignment:

Typically, the assignment becomes active (or “absolute”) upon a default by the property owner. Prior to default, the owner usually retains the right to collect and use the rents, often referred to as a “conditional” assignment.

4. Enforcement and Collection:

Upon default (generally, your borrower missing an installment payment), the lender gains the ability to enforce the assignment of rents. This may involve notifying tenants to pay rents directly to the lender or taking legal action to collect the rents (sue your borrower!). The lender’s right to collect rents is subject to existing tenancy agreements and state laws regarding tenant rights.

Your lawsuit will be filed seeking appointment of a receiver (the guy who will collect the rent, deposit them with the Court, which will account them to you). The lawsuit may also include any other causes of action which lie against your borrower (i.e. conversion, judicial foreclosure, breach of contract, breach of guaranty, child support, … whatever).  The motion to appoint a receiver will come about one month after filing, and you can expect to begin seeing the rent deposited during the following rent cycle.

5. Implications for Property Owners and Lenders:

For property owners, it’s crucial to understand assigning rents can impact their cash flow and control over the property in case of a default. This is a high leverage proposition. Without their revenue, it is extraordinarily difficult for them to operate. You’ll have their full attention (perhaps for the first time since default). For lenders, while it provides an additional security layer, it also imposes the responsibility of managing rent collection and possibly dealing with tenants directly.

6. Best Practices:

• For Property Owners: Carefully review the terms of any loan agreement that includes an assignment of rents. Consider the implications of default and seek legal advice if necessary.
• For Lenders: Ensure compliance with California law when drafting assignment of rents clauses and enforcing them. Clear communication with borrowers and tenants is key to smooth enforcement. Use counsel who is experienced in these matters. This isn’t an area to experiment with.

Conclusion:

The Assignment of Rents is a critical tool in real estate financing in California, offering additional security to lenders while imposing certain obligations and risks. Both lenders and property owners should approach this arrangement with a clear understanding of their rights and responsibilities under California law. Contact the team at Geraci with any questions you may have about Assignment of Rents.

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What is an Assignment of Rents?

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An assignment of rents and leases is an agreement between the owner of a particular property and a designated second party. The terms and conditions allow that second party to collect any rental payments paid by tenants and to manage that property for a period of time. This type of arrangement is most commonly utilized to settle a loan or some sort of credit extended by the second party to the property owner, and remains in effect until the debt is settled in full.

For the duration of the assignment of rents, the property owner remains the owner of record for the property. There is no transfer of title, although the lender is usually given the privilege of managing the property as he or she sees fit. This means that for the duration of the agreement, the lender can use part of the collected proceeds to maintain the property, while applying the remainder of the collected rent payments toward the outstanding balance of the loan amount.

Choosing to create an assignment of rents usually takes place because the property owner is in need of a quick infusion of resources for some reason. Rather than going with a loan and simply using the property as collateral , the assignment of rents effectively allows the property owner to borrow against future income, which is realized as tenants make regular rental payments. As with any type of loan situation, there is a rate of interest applied to the outstanding balance, with a portion of each month’s proceeds going to retire a part of the principle as well as some of the interest due.

The benefit to the property owner is that loans with this stipulation often carry very competitive rates of interest. This means that over the life of the loan, the owner is likely to pay much less interest on the loan installments. Since an assignment of rents can easily be structured between two individuals, there is also the advantage of not having to go through a bank or mortgage company at all. If the property owner can find an angel lender who is willing to advance money now and receive payments back from the rental proceeds each month, the paperwork is kept to a minimum, and the owner can receive the advance of funds almost immediately.

It is not unusual for an assignment of rents to also contain clauses that protect the interests of both the property owner and the lender. These provisions give the lender protection in the event that the collected rentals slip below a certain point due to vacancies. At the same time, the owner is protected from the lender attempting to gain ownership of the property as long as the monthly payments amount to a minimum figure.

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Subleases and Assignments by Tenants & Related Legal Concerns

Some landlords allow a tenant to sublet their unit to a third party, while others do not. If you are considering this option, you should check your lease or rental agreement to make sure that it is permitted. Even if it is not explicitly prohibited, you should get your landlord’s permission in advance to minimize future disputes.

How a Sublease Works

A subtenant is not a co-tenant and does not have a direct relationship with your landlord. As their “landlord,” you can (and should) require them to pay rent directly to you and evict them if they fail to follow through. This differs from a co-tenant, who can be evicted only by your landlord. If you decide to evict your subtenant, you will need to follow the same procedures that would be required of a landlord. A month-to-month rental agreement may be better for a subtenant arrangement than a lease. Any agreement should clearly state the amount of the rent, the length of the tenancy, and any security deposit that may be required.

A tenant will usually need their landlord’s permission before subletting their unit, but some state or local laws may prevent landlords from unreasonably denying subleases.

You should be aware that any benefits that you give your subtenant must fit within the overall rules that the landlord imposes for the property and the people who live there. Even though the subtenant did not sign your lease with the landlord, its terms apply to them as well.

You should make sure that you are confident about the subtenant’s financial situation and ability to comply with the terms of the sublease and the landlord’s rules. If they fail to pay rent or damage the property, you will be on the hook to the landlord for all of your own rent and the cost of any repairs. In extreme situations, such as criminal activity by your subtenant, the landlord may evict you in order to remove the subtenant. You also may face an eviction if you get into a dispute with your subtenant. If they refuse to leave when you return, for example, it may be easier for the landlord to simply evict both of you.

Can a Subtenant Turn Into a Tenant?

A subtenant can turn into a tenant if the landlord and you start acting as though the subtenant is a co-tenant. The most common issue here is who receives rent from the subtenant. If they start paying the landlord rather than you, they will have a strong argument that they are the landlord’s tenant. To prevent your subtenant from gaining the rights of a co-tenant, you should make sure that they pay rent to you, and then you can send it to the landlord.

Assigning a Lease

While assignments are often discussed together with subleases, they should not be confused. An assignment transfers the rest of your lease to a new tenant, and it usually happens when you want to move out before the lease is over. While a sublease makes you the landlord of the subtenant, an assignment makes the assignee a tenant of your landlord. All of the terms of your existing agreement with the landlord most likely will apply to the assignee. (There is an exception if the agreement contains a personal term, such as handling errands for the landlord in exchange for reduced rent.) The original tenant, the assignee, and the landlord all will need to sign the assignment document for it to become valid.

The original tenant will remain liable for rent that the assignee does not pay unless the landlord agrees otherwise.

Assignments can be risky because the original tenant remains on the hook to the landlord for all of the remaining rent if the assignee fails to pay it. This essentially makes the original tenant a guarantor for the rent, so it may be more appealing to try to terminate the lease early and let the next tenant start a new lease. Sometimes, however, you can work around this default rule and get the landlord’s consent to take you off the hook for any rent that the assignee does not pay.

Vacation Rentals (Airbnb)

Many tenants try to earn extra money by listing a home as a short-term vacation rental on websites like Airbnb. You should make sure that your lease permits this type of rental, since you may face eviction if you use Airbnb without your landlord’s authorization. You should get any ensuing agreement with your landlord in writing. It should cover issues such as how much of your unit will be leased to the short-term renter, how often you can list on Airbnb, and financial considerations such as any amount of the Airbnb rent that the landlord receives.

In addition to getting your landlord’s permission, you will want to make sure that listing your home for a short-term vacation rental complies with any zoning or land use laws in your area. You must comply with any restrictions in these laws, even if your landlord does not require it.

Finally, you may want to purchase renters’ insurance, while being aware that it may not cover people in a vacation rental. Some insurance companies are extremely reluctant to provide policies to people who plan to list on Airbnb or similar services.

Last reviewed October 2023

Landlord - Tenant Law Center Contents   

• Landlord - Tenant Law Center
• Choosing a Place to Rent & Legal and Financial Concerns
• Understanding Leases and Rental Agreements & Their Legal Implications
• Changing a Lease or Rental Agreement
• Rent Rules and the Legal Rights & Obligations of Tenants
• Security Deposit Rules & Tenants' Legal Rights
• Inspecting a Rental Property Before Signing a Lease
• Co-Tenants' Legal Rights & Obligations on a Lease
• Subleases and Assignments by Tenants & Related Legal Concerns
• Major Repairs to Rental Property & Tenants' Legal Options
• Minor Repairs to Rental Property & Tenants' Legal Options
• Improvements, Alterations, and Fixtures on Rental Property
• Tenants' Legal Rights to Privacy
• Injuries to Tenants on Rental Property & Related Legal Claims
• Environmental Hazards on Rental Property & Enforcing Tenants' Legal Rights
• Inadequate Security at Rental Property & Tenants' Legal Options
• Terminating a Lease of Rental Property & Related Legal Rights and Obligations
• Abandoning Personal Property When Leaving a Rental Unit
• Recovering a Security Deposit When Leaving a Rental Unit
• Resolving Disputes With Your Landlord Without a Lawyer
• Responding to Legal Notices Terminating a Tenancy
• The Eviction Legal Process for Tenants
• Working With a Tenants' Rights Lawyer
• Tenants' Legal Rights & Duties — FAQs
• Landlords' Legal Rights & Duties
• Housing Discrimination Law
• Eviction Laws and Forms: 50-State Survey
• Find a Landlord Tenant Lawyer

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Balance Magazine

Maximize Your Property's Potential: Navigating Assignment of Rents with Ease

In the realm of real estate financing, especially when it comes to securing private loans or second mortgages, property owners might encounter a term that sounds complex but is crucial in the lending world: the Assignment of Rents. This agreement can be a pivotal factor in obtaining the financial leverage needed for investment or operational purposes. Let's demystify this legal document, explore why it's often a prerequisite in certain lending scenarios, and outline its advantages and disadvantages.

What is an Assignment of Rents?

An Assignment of Rents is essentially an agreement between a property owner (the Assignor) and a lender (the Chargee) where the former assigns their right to collect rents from a property to the latter as security for a loan. This doesn't transfer ownership of the property but grants the lender specific rights over the rental income and, to some extent, lease management.

Why is it Needed?

This arrangement is particularly common in private lending and when securing second mortgages. In these cases, lenders seek additional security beyond the physical asset of the property itself. Since these lending scenarios often involve higher risks or are structured as bridge financing, the Assignment of Rents provides a lender more direct access to income generated by the property, enhancing the loan's security.

The Pros of an Assignment of Rents

• Enhanced Loan Approval Chances : Offering direct access to rental income can make it easier for property owners to secure loans, especially in high-stake situations like second mortgages or private lending.
• Financial Flexibility : It allows property owners to leverage their existing assets to obtain the financing they need for further investments or to manage cash flow effectively.

The Cons of an Assignment of Rents

• Reduced Control Over Rents : Property owners give up some control over their property's income, which might impact financial planning and operations.
• Potential for Lender Intervention : In cases of default or if certain conditions are triggered, the lender might step in to collect rents directly, which could affect tenant relationships.

Navigating the Assignment of Rents with Expertise

Given the complexity and the significant implications of an Assignment of Rents agreement, it's paramount for property owners and investors to approach this legal tool with a clear understanding and strategic foresight. Here's where expert legal counsel comes into play.

At Nungisa Law, we specialize in real estate, business law, and wills and estate law, offering comprehensive legal services tailored to your unique needs and circumstances. Our team is adept at navigating the nuances of Assignment of Rents agreements, ensuring that our clients not only understand their obligations and rights but also strategically position themselves for financial success.

Whether you're considering private lending options, securing a second mortgage, or exploring ways to leverage your property's income for financing, we're here to provide the guidance and support you need. Our approach is to humanize your legal interactions, ensuring that your legal journey is not just successful but also relatable and understandable.

If you have questions about Assignment of Rents or need expert legal advice on your real estate financing strategies, contact Nungisa Law today. Our mission is to partner with you in your legal journey, ensuring your success is our success.

Don't navigate the complex waters of real estate financing alone. Let Nungisa Law be your guide and partner in making informed, strategic decisions that align with your goals. Email us at [email protected] , we're happy to help.

#RealEstateLaw #AssignmentOfRents #PrivateLending #SecondMortgages #LegalAdvice #NungisaLaw

Unbiased Lens: Mastering Impartiality in Workplace Investigations

Ontario's real estate revamped: tresa 2023.

What’s an Assignment of Rents?

A lender may ask you to sign an assignment of rents agreement, but what is this? Should you agree to this?

In this piece, we give you a quick overview into what an assignment of rents is whether you should agree to this.

What is an Assignment of Rents?

An assignment of rents reserves the lender the right to collect rent payments (if being rented out) when a borrower defaults on their loan payments. The lender using certain clauses can also take over the lease and dealing with the tenant. However, both the borrower and lender must agree to this.

The assignment of rents is registered on the property alongside the mortgage/loan. This means that once the mortgage is discharged from the property, so is the assignment of rents.

General vs Specific Assignment of Rents

There are two main types of assignments of rents, general and specific. A general assignment of rents allows for the creditor to collect rent but not under a specific lease. This assignment therefore applies to all present and future rental income/leases.

On the other hand, a specific assignment of rents applies to leases that are specifically listed in the document. If any of the specific/listed leases expire or are terminated, the specific assignment of leases will not apply to any new lease/sublease.

In most situations, the lender will prefer a general assignment of rents as it is a more comprehensive additional security.

Signing an assignment of rents is standard practice for rental properties and protects the lender if you default. If you’re interested in what an assignment of rents agreement looks like, click here to see an example of an Assignment of Rents from the Land Registry of Ontario.

If you have any questions on the assignment of rents, feel free to contact our office at 905 787 2296 or [email protected] .

Navigating the assignment of a residential lease

A landlord can assign his leases to a new buyer of his building. Likewise, a tenant may be able to assign his lease if he needs to relocate. Find out how to assign your lease and what you can do to protect yourself when doing so.

by   Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does...

Read more...

Updated on: December 4, 2023 · 3 min read

Assignment of lease by the tenant

Assignment of lease vs. sublease, assignment of lease by the landlord.

As a tenant, you may want to get out of your residential lease without paying the remaining rent. Likewise, if you're a landlord and sell your rental property, the buyer must now collect rent from the tenants, who may have no idea you sold the property. In both situations, assignment of a lease with a release for the tenant and assignment of leases with notice by the landlord accomplish these goals.

If you're the tenant and want to leave before the end of your lease term, you may be able to assign your lease to a third party if the landlord doesn't let you out of the lease. The third party then becomes the new tenant, who is bound by the terms of the original lease and pays rent to the landlord.

Most often, the lease won't permit assignment without the landlord's approval, but leases often state that the landlord cannot unreasonably withhold consent. As long as you produce a tenant who's shown a history of payment under prior leases and has been a model tenant, a landlord should consent to assignment.

The assignment of lease form should include places for the tenant-assignor, the new tenant-assignee, and the landlord to sign. If the master lease allows assignment, then the tenant doesn't need the landlord's permission; the tenant can sign an assignment of lease agreement without the landlord's signature.

If the landlord allows an assignment of the lease, you, as the tenant, also want him to sign a release stating that you're not responsible for the new tenant's failure to pay or for any damage she causes. Without such a release, you may still be liable for both.

When you, as the tenant, assign the lease, you sign an agreement that either reads “Assignment of Lease," “Lease Assumption Agreement," or “Assignment and Assumption Agreement." An assumption of the lease means that the new tenant assumes your obligations, such as paying rent and keeping the apartment in good condition.

An assignment of a lease transfers the tenant's entire rights in the property to a third party. With a sublease, on the other hand, the tenant transfers only a portion of the remaining lease. For example, if the original tenant has six months remaining on his lease and he gives the entire six months to a third party, the tenant is permanently assigning his rights to live on the property to the third party. If, however, the tenant allows that third party to stay at the premises for only three months, and the tenant intends to return after three months, he is subleasing the premises.

A landlord can assign the right to collect rent to someone who has purchased the property. An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords protection to the buyer so he can collect rent.

An assignment of leases by the landlord to the buyer is meaningless if tenants aren't aware the landlord sold the property, which is why it's important for the assignor-landlord to give tenants proper notice. A notice of assignment of lease, which is a form signed by both the assignor-landlord and the assignee, or new landlord, is one way to give notice. Another way is to send a letter on the landlord's letterhead. Either way, the notice must include the new landlord's address and how rent is to be paid.

Both landlords and tenants who become assignors should sign a formal assignment of lease agreement, which an online service provider can prepare for you. If you're the tenant who has assigned your lease, try to get a release or you'll still be liable to the landlord. If you're the landlord, make sure you can count on the new tenant to pay the rent before you release the primary tenant from his obligations under the lease.

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Assignment of rent: an effective remedy against defaulting borrowers?

This article relates to:

The property market is still volatile despite rising property prices, and it remains a tricky time for lenders.

The property market is still volatile despite rising property prices, and it remains a tricky time for lenders.  For those lenders struggling to keep debts serviced until property values rise again, the assignment of rental income by way of security can provide an effective remedy against defaulting borrowers.

Through such an assignment, lenders can demand that rent is paid to them directly from tenants which can then be used to discharge outstanding loan or interest payments as an alternative to repossession and sale.   

For those properties in negative equity, where the current value is less than the amount secured on it, the assignment route enables lenders to keep loans serviced until property values increase again when the land can be sold to repay the lender in full.

Whilst lenders are commonly entitled under their standard mortgage terms to appoint Law of Property Act 1925 Receivers to collect rent directly from tenants, the main benefit of using the assignment by way of security route rather than relying on the receiver is that with the latter:

• Receivers charge a fee or commission by the receiver for any rent collected;
• Receivers have a discretion to exercise wider powers than simply rent collection, potentially increasing costs and depleting available funds from the property; and
• Receivers may be unwilling to accept the appointment if they feel it is too minor, such as where only one low value property is involved.

Using the assignment method, there are no costs to the lender whose security entitles them to gain direct control over rental income without the need for a receiver appointment, as the lender is empowered to take all necessary steps themselves.

Under lenders’ standard legal mortgages, there is often a provision requiring landlords to hold any rent received upon trust for the lender. However this provision is ineffective against a defaulting or insolvent landlord since unlike assignments it does not confer rights of ‘appropriation’ of the money. An assignment gives powers for the lender to pursue the money directly.

To take advantage of this type of security, lenders should ask the borrower to sign a form of assignment containing a fixed charge over the rental account held by the landlord together with an assignment of the borrower’s right to receive rent from the tenant

Once this document is entered into, the borrower is prevented from using or releasing the money held in the rental account because it is charged to the lender, and is additionally unable to collect rent directly from tenants since this right is conferred on the lender as a direct assignment.  Lenders are also entitled to sue tenants directly for non-payment of rent.

It would be prudent for lenders to require this type of security in every case where rental income from the property is to be the borrower’s main or only source of repayment of the mortgage loan.  Otherwise, if prices have fallen and the borrower directs the tenant to pay its rent elsewhere, lenders will be left in the cold with no immediate remedy except the more expensive receiver route.

The status of the lender’s security over the rental account will depend on the level of control it exerts over that money.  If the lender does not allow funds to be released without their express consent, it will usually be a fixed charge.  However if lenders allow the borrower freedom to use and release money without reverting back to them in every case, it is more likely to be construed as a floating charge.

If the rental account is held by another lender, that other lender should be asked to confirm that it will not exercise any right of set-off or counterclaim against the money standing to the credit of the rental account.

To be binding on liquidators, the security assignment must be registered at Companies House. It is not registrable at the Land Registry.

Also, notice of the assignment must be given to all affected tenants in order to reserve priority over the rental money.  The notice explains to tenants that they must make rent payments directly to the lender if they are asked to do so at any time in the future.  It goes on to say that the tenant need not contact the landlord to enquire as to the justification of any request it receives from the lender, and will not be penalised by the landlord at a later dated for following the lender’s instructions.

The tenant signs a counter-notice confirming its understanding of those rights and verifies that it has not already received a similar request from another lender.

If no notice is served, the assignment will still confer the same rights over the rent but the lender could lose priority to another lender who took an equivalent assignment and served notice on the affected tenants.  Priority over the rent between competing lenders is determined by the date notice is served and not by the date of the assignment.

The main advantage of the assignment is that it provides lenders with a more direct route to obtaining critical funds to service debts. This route is quicker and often cheaper than appointing a receiver, as the lender may carry out the work itself. The assignment gives lenders powers of appropriation not normally found in standard legal mortgages, and if the money has already been paid to the borrower’s rental account it is effectively frozen in favour of the lender.

Find out more about the services offered by our landlord and tenant solicitors .

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What is assignment of rent?

When you rent out a mortgaged property, you may have to sign over an Assignment of Rent agreement to the lender. By doing so, you authorize the lender to collect rent on your behalf if you default on the mortgage.

The Assignment of Rent provides an additional security to the lender in case you default on the loan. The lender will use the Assignment of Rent only when you default on the loan. Through this agreement, he will be able to collect rent payments on your behalf till the end of the lease period and recover the unpaid loan balance. Any extra cash collected by the lender will be returned to you. Once the debt is fully paid off, the assignment of rent will become null and void.

Assignment of rent is a legal agreement in which a property owner transfers the right to collect rent from tenants to another party, often a lender as security for a loan. This means that if the property owner defaults on the loan, the lender can step in and collect rent directly from tenants to recoup their investment.

Add your answer:

Does Sacramento have rent control?

No, Sacramento does not have strict rent control in place. However, the city does have certain tenant protection measures and rent stabilization policies to prevent unreasonable rent increases in certain circumstances.

Can a judge sign off on a order of assignment and weeks later sign a judgment?

Yes, a judge can sign off on an order of assignment and later sign a judgment in the same case. The order of assignment addresses the allocation of funds or assets, while the judgment finalizes the decision or outcome of the case.

How can you not do this assignment?

I'm programmed to assist with assignments, so I'm here to help you with whatever you need! Just let me know what you need assistance with.

Can occupants living on a intestate estate be asked to pay rent?

Yes, occupants living on an intestate estate can be asked to pay rent to the estate if they are using the property. This rent can then be used to cover expenses related to the maintenance and upkeep of the property.

What is a compound sentence for reproach?

She reproached him for not completing his assignment, but he ignored her criticism and walked away.

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ASSIGNMENTS OF LEASES, RENTS, NON DISTURBANCE AND ATTORNMENT: An Introduction

Date Posted: June 11, 2010 By Jeff Levy, HBSc, MBA, CFA, AMP, JD

Leases and tenancies of a secured property are of great interest to a commercial lender for the following reasons:

1. The borrower could pay the debt from the rent obtained from the tenant;

2. For valuation of the property based upon a cap rate, the rent could be used as the basis;

3. The rent would determine whether or not the borrower could liquidate the property to repay the debt or get replacement financing to repay the debt, namely the voluntary exit strategy;

4. It would also indicate whether or not the lender could liquidate the property using mortgage remedies to repay the debt or could sell security to another lender, namely the involuntary exit strategy;

5. It would make up for a part of the shortfall while the lender is following other remedies;

6. It would permit a lender to keep a prior mortgage in suspension while the succeeding lender exercises its remedies; and

7. When the succeeding lender is without security because of falling values, getting the rents would allow a modest recovery, though such rent recovery would be short-lived.

ASSIGNMENT OF RENTS VS. ASSIGNMENT OF LEASES

The borrower could be asked by the lender to assign rents to it from the secured property or assign the leases themselves to the lender which could be an assignment of the rents or leases from a specific tenant or a general assignment of all existing or future leases or rents. If so, then what is the difference between the two?

First off, both enable the lender to get the rent. Such assignments are regarded as collateral security and not as absolute assignments. It is an important difference in respect to an assignment of leases where an absolute assignment of leases creates privity of contract between the mortgagee and the tenant. Thus, an absolute assignment of leases makes the mortgagee liable to the tenant for all of the landlord’s covenants. Such assignments are unacceptable to a lender, and hence assignments of leases are clear in stressing that the lender assumes no obligations under the lease. This is why the courts have held assignment of leases to be collateral security and not absolute assignments. That is also the reason to consider the matter in relation to Section 36 of the Personal Property Security Act (the “P.P.S.A.”).

The crucial difference between an assignment of rents and an assignment of leases is that the first  assigns only the rents, while the second assigns the entire contract (lease) to the lender. In other words, a chose in action or the landlord’s right to receive rent is assigned in the first, as opposed to the assignment to the lender all of the landlord’s rights or benefits in the lease contract, including the right to receive rents, is assigned in the second. In short, the right to receive rents is a personal property, but the lease itself is real property.

Nonetheless, an assignment of leases assigns all of the lease covenants but none of the landlord’s obligations under the lease. However, if it is absolute through sale or foreclosure, then the mortgagee becomes the landlord under the lease and is bound by all the landlord’s covenants.

The assignment of leases does more by assigning to the lender a real property interest. In fact, many documents entitled “Assignment of Rents” are by their terms assignments of leases as well, while in some instances, the document is entitled “Assignment of Leases and Rents”, which is actually a good thing because the P.P.S.A. should not be applicable to such a hybrid document. Summing up, an assignment of rents does not assign a property interest, an assignment of leases does.

Questions Arising from the above are as Follows:

Should an assignment of rents be registered under the P.P.S.A.;

Should an assignment of rents be registered on title to the secured property; and

Should an assignment of leases be registered just against title to the secured property or should it also be registered under the P.P.S.A.

To comprehend such issues, it should be remembered that an assignment of rents is not an interest in real property. It happens to be an interest in a lease, which is one of the covenants in the lease. It is the most important covenant, but it is not what is meant by real estate. Hence, without a special provision in the Land Titles Act, an assignment of rents theoretically cannot be registered. In fact, there is a special provision in the Land Titles Act for registration of an assignment of an interest in a lease (Section 111 of the Land Titles Act), which has been interpreted by Registrars to include an assignment of rents. The interest in the lease getting assigned is the rent, which registration for occurs under Section 71. It happens to be not a defensible position, but it has its uses.

Know your legal rights as a tenant or a landlord. For more information about renting in Toronto, and how you can use Ontario law to your advantage, contact the lawyers at Levy Zavet PC ( Levy Zavet ) in Toronto, Ontario.

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Breaking news, do the math: nyc’s rent ‘increase’ equals landlord losses — and harms our housing.

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The data is indisputable: Adjusting for inflation, the New York City Rent Guidelines Board in Mayor Adams’ first three years has advanced rent adjustments that are more than twice as bad for rent-stabilized buildings as the rent adjustments advanced during the eight years under Bill de Blasio. 

Last month, the RGB voted to allow rent increases of up to 2.75% for one-year leases and 5.25% for two-year leases. 

That means under the Adams RGB, rent adjustments have averaged 1.4 percentage points below inflation over the past three years.

Meanwhile, rent adjustments under de Blasio averaged 0.65 percentage points below inflation, according to the RGB’s calculations.

So while rent increases have been authorized in each of the past three years, the net effect on older rent-stabilized buildings, which provide the majority of affordable housing in the city, has been worse.

This data flies in the face of the narrative being pushed by Adams’ opponents, who have been shouting from the rooftops that the mayor is raising the rents.

We understand the frustrations that come with inflation: Our members have seen the cost of everything associated with building maintenance go up dramatically in the past three years, while rent increases fail to keep pace. 

Data may take a back seat to vibes in this day and age, but the operators of the largest swath of affordable housing in New York City can’t run their buildings on vibes.

If rents don’t increase with costs, maintenance is deferred — and buildings start to deteriorate.

The inconvenient truth is that the Adams administration has accelerated the defunding of older rent-stabilized buildings that started under de Blasio.

When rents were frozen in 2016, property owners weren’t happy — but their costs actually decreased that year, while inflation held slightly above zero.

So the RGB was justified in taking that unprecedented step. Yet according to the data, the RGB’s June vote was much worse for property owners than the rent freeze was in 2016, because this year the rent increase was a full 1.05 percentage points below inflation.

From an owner’s perspective, balancing growing costs against revenues, this year’s increase is in effect a rent rollback.

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Since inflation has increased by 23% over the past decade per RGB calculations — and rents have only increased by a cumulative 14% — income has been reduced by 9% from a landlord’s point of view.

The news media in this town perpetuates a myth that Adams is somehow a friend to real estate because he talks about balancing the needs of tenants and buildings. 

But the mayor’s rhetoric doesn’t pay the property taxes, insurance, water and sewer bills, or any of the mandated costs that the City Council has pushed onto property owners.

Under this mayor, property taxes — the biggest cost for rent-stabilized buildings — went up 2.8% just this year, while Adams’ Water Board approved a 9% increase. 

Yet last year, the RGB’s own data found an 8.5% rent increase would be necessary to prevent the deterioration of rent-stabilized buildings: The board raised rents 3%. 

This year the RGB’s data said a 4% rent increase was necessary, and the board raised rents 2.75%. 

The math is indisputable: Under Adams, the RGB has favored tenants more than property owners by keeping rent increases below inflation, and well below the amount needed to prevent rent-stabilized buildings from falling into disrepair. 

Apparently data doesn’t matter anymore — advocacy groups know that shouting the loudest and staging performative protests gets the necessary attention. 

Yet if elected officials changed the inequitable property-tax system that favors wealthy homeowners, cracked down on insurance redlining and gave affordable-housing providers a break on water and sewer costs, the RGB wouldn’t have to raise rents at all. 

As long as this false narrative around the RGB is perpetuated, renters will never get actual relief.

Jay Martin is executive director of the Community Housing Improvement Program.

What is negative gearing, how does it work and does it increase house prices?

There's been a lot of talk in recent years about how difficult it is for young people to buy a home in Australia, but with everything getting more expensive lately, the conversation has been intensifying. 

And the discussions usually include terms such as "negative gearing" and "capital gains tax concessions". 

These may sound like complicated concepts, but you don't need to be a financial expert to understand them.

And you shouldn't feel silly if you don't quite understand negative gearing because the chances are that the explanations you're getting are overly complicated and full of financial jargon, so they're not actually providing any clarity.  

Here's a breakdown of negative gearing in simple terms.

What is negative gearing (in simple terms)?

Negative gearing is when investment property owners operate at a loss , and then deduct that loss from their overall taxable income to reduce their income tax payable .

What is the point of negative gearing? 

We went to ABC business reporter Michael Janda  to make sense of all this for us. 

It's important to remember that negative gearing isn't new. 

It was effectively abolished for future rental property owners in the mid-80s but was reinstated within about two years.

And the  current rules have been in place since 1987 . 

" It's a long-standing feature of the Australian tax system — the idea that you can deduct your costs from any gross profits to make sure you're only taxed on your net earnings . "Think of it as being a bit similar to some of the work-related tax deductions many of us claim for things like home offices, union fees, travel expenses, self-education, etc. "The controversy is not over investors being able to deduct costs from their rental income, but that they can use any net losses from their rental properties to reduce the taxable income from their wages or other earnings that are totally unrelated to their property investment. "Many countries do not allow this and restrict using property tax deductions only to income generated by those property investments."

What is negative gearing in simple terms?

Say you buy a house and rent it out.

But the money you make from the rent is less than your mortgage interest payments, maintenance bills and other costs.

So you're running at a loss.

That loss is commonly referred to as negative gearing (as opposed to positive gearing, which is when your rent is more than your costs, so you make a profit).

Losing money on an investment property sounds like it should be a bad thing.

But property owners can use that to their advantage at tax time.

They do this by deducting their rental losses from their overall income for the year.

So let's say they earn $80,000 and their property runs at a loss of $10,000.

They can deduct that from their income when filing their tax returns for the financial year. 

That means they're only paying tax on $70,000.

And that means they're paying less tax.

So, without negative gearing, they'd be paying about $16,000 in tax.

But when they factor in their negative gearing losses, they only pay about $13,000.

Now, this doesn't completely cancel out their loss, it just reduces it.

They're still running at a loss of $7,000.

And, again, this sounds like a bad thing — but there's more to the story.

How is negative gearing beneficial?

You have to think long-term . 

Janda explains the major benefit comes from combining negative gearing with a discount to something called the capital gains tax .

This discount was introduced back in 1999 — but we'll get to that in a second. 

Janda continues the example with our imaginary investor above.

Let's say they bought that property for $500,000.

Five years later, they sell it for $750,000.

Janda takes into account the original cost price of the house plus extra fees — think stamp duty and conveyancing costs —  to assume the person makes an overall profit of $200,000. 

" The investor has to pay income tax on that profit , which is called capital gains tax. "But the 50 per cent capital gains tax discount means they only pay tax on half of that profit,  so instead of paying tax on $200,000, they only pay tax on $100,000. "Our investor's total tax bill that year will be a tad under $48,000 on a total net income of $270,000. "If they had to pay tax on all the capital gain, or had earned that much from wages or a salary, they'd have had to pay more than $92,000 in tax. "So, it's not the $15,000 or so in tax savings over the five years that makes negative gearing so attractive, but the combination with reduced taxed profits at the end — assuming the property's value goes up."

What is capital gains tax?

Capital gains tax is the tax people pay on the profits they make from selling assets — in this context it's on property sales, but it can be any asset including shares and cryptocurrency.

These profits are considered part of the person's earnings for that financial year .

When did the capital gains tax discount come in?

More than 20 years ago.

It's also referred to as the capital gains tax concession. 

To understand the magnitude of this discount, Janda takes us back to when John Howard was Australia's prime minister : 

" In 1999 , the Howard government made a dramatic overnight change to capital gains tax. "When the Hawke government first introduced that tax in the mid-1980s, it allowed investors to deduct inflation from their profits, so that they were only paying tax on the 'real' gain. "But John Howard and his treasurer Peter Costello replaced that system with a blanket 50 per cent discount on capital gains tax. "Unless you're holding an investment for more than 16 years, that means you'll probably pay less tax on any profits than under the old system."

How does negative gearing interact with the capital gains tax discount?

This is the big issue because it means investors can end up paying much less tax, Janda says. 

"If you can use negative gearing to offset your current rental losses at your full marginal tax rate (45 per cent for high-income earners) but then pay effectively half that rate of tax (22.5 per cent) on any capital gains (profits) then that looks like a pretty attractive way to pay less tax overall — assuming your investments do make a profit. "It's probably no coincidence that property investment really took off in the early 2000s. "Former Treasury secretary Ken Henry, who was the last person to review Australia's tax system, agrees that the 50 per cent CGT discount was likely a key factor."

Dr Henry, who Janda refers to, explains that negative gearing and the capital gains tax concession go hand in hand.

"We have to talk about negative gearing," he said in an interview on ABC radio. 

"We have to talk about the capital gains tax concession, the fact that only 50 per cent of nominal capital gains are included in a taxpayer's income whilst they get full interest deductions.

"That's what negative gearing is all about."

Why is negative gearing controversial?

Because, as Janda points out, not all countries allow it.

Here's ABC business editor Ian Verrender on that :

"Negative gearing is controversial because, while it is standard practice to be able to write off business costs  like interest payments  against business revenue , in Australia, we go one step further. "We allow those costs or losses to be written off against personal income ."

Who is negative gearing good for?

It primarily benefits people who want to invest in property , Janda says:

"By allowing them to offset net losses against their other income and reduce their tax bill now, it allows investors to pay more for property than they would otherwise be able to if they had to wait and offset them against potential future rental profits. "Advocates argue that negative gearing also boosts rental supply because it makes property investing more affordable and attractive."

Who is negative gearing bad for?

People who aren't investors who want to buy property.

Janda says this is particularly true for people looking to buy at the cheaper end of the market — so think first home buyers .

"They have to compete against people who not only tend to have higher incomes and more equity anyway. "They're also up against people who also have an annual cashflow benefit from the tax refunds they can generate from deducting their interest payments and other costs against their taxable income."

Critics say it means working generation families can't afford to buy a house.

One of those critics is Dr Henry,  who says the current system is causing "'tragic intergenerational inequity" . You can listen to the full interview below:

Would abolishing negative gearing push up rents?

Probably not in the long run , Janda explains:

"Given that most property investment (some estimates put it at about 90 per cent) goes into established properties, not newly built ones, it doesn't add much to housing supply. "If you abolished it, there would surely be many thousands of investors who either had to sell up or chose to, which would reduce the supply of rental properties. "However, the buyers of those properties would be either other investors (in which case that property stays available for rent) or owner-occupiers who were previously renting, in which case demand for rental properties falls by roughly the same amount as the supply of them. "Therefore, abolishing negative gearing would likely have little longer-term effect on rents, a conclusion reached by the Grattan Institute in a major 2016 report ."

Would abolishing negative gearing push down home prices?

A little in the long run . 

But Janda reckons it could have a more dramatic effect in the short term :

"The Grattan Institute estimated that abolishing negative gearing and halving the CGT discount would cause home prices to be around 2 per cent less than they otherwise would be. "This may be true over the long run, once the market has adjusted to the initial shock of any change. "However, short-run effects could be greater. "There is little data available on how many investors could no longer afford their repayments without the tax refunds generated by negative gearing. "If tens of thousands of additional properties came onto the market in a short space of time, especially with forced sellers, that could see a much sharper short-term fall before the market stabilised. "After all, it's not like most would-be first home buyers could just run out, get a loan today and buy a property this weekend."

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Fact-Checking Biden’s and Trump’s Claims About the Economy

We fact-checked claims about inflation, jobs and tax policy from both presidential candidates.

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By Linda Qiu

Reporting from Washington

Consumer sentiment about the state of the economy could be pivotal in shaping the 2024 presidential election.

President Biden is still grappling with how to address one of his biggest weaknesses : inflation, which has recently cooled but soared in his first years in office. Former President Donald J. Trump’s frequent economic boasts are undermined by the mass job losses and supply chain disruptions wrought by the pandemic.

Here’s a fact check of some of their more recent claims about the economy.

Both candidates misrepresented inflation.

What Was Said

“They had inflation of — the real number, if you really get into the real number, it’s probably 40 percent or 50 percent when you add things up, when you don’t just put in the numbers that they want to hear.” — Mr. Trump at a campaign event in Detroit in June

“I think it could be as high as 50 percent if you add everything in, when you start adding energy prices in, when you start adding interest rates.” — Mr. Trump in a June interview on Fox News

This is misleading. Karoline Leavitt, a spokeswoman for the Trump campaign, cited a 41 percent increase in energy prices since January 2021, and prices for specific energy costs like gasoline rising more than 50 percent during that time.

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