Legal opinion regarding execution of deed of mortgage A/C Company 1.

Mr. Z

Address….

Dear Sir,

RE:     Legal opinion regarding execution of deed of mortgage A/C Company 1.

We refer to your letter no. ………………… dated May 22, 2007 on the above subject.

We have perused the contents of your letter and provided documents annexed therewith. It appears that, Company 1 (“Borrower”), a client of Bank 1 (“Bank 1”) is contemplating purchasing a total of 83,000 sq. ft. of floor space along with around 07 katha proportionate land at …………….. The proposed floor space comprises of the 1st, 2nd and 3rd floors (“3 Floors”) of the 15-storied commercial building (under construction) (“Building”) which is being built on the land owned by COMPANY 1 (“Landowner”) by their constituted attorneys Eng. Mr. X, Chairman and Eng. Mr. Y, Managing Director of Company 2 (“Developer”).

The Developer has been enjoying credit facilities from Bank 2 (“Bank 2”) against registered mortgage of the Building.

Bank 1 has sanctioned a Term Loan for Tk. 13.50 crore favouring the Borrower for purchasing the 3 Floors against registered mortgage of the same. Now the Borrower wants to pay the Developer partially to repay their entire loan with Bank 2 so that the existing mortgage may be redeemed by Bank 2.

According to Bank 1, they have the following two approaches:

Approach 1: Upon redemption of the mortgage by Bank 2, the Developer will execute third party registered mortgage of the 3 Floors in favour of Bank 1 as security for the loan given to the Borrower by Bank 1.

Approach 2: Upon redemption of the mortgage by Bank 2, the Developer, on behalf of the Landowner, will sell the 3 Floors by executing Deed of Sales in favour of the Borrower; and the Borrower will then execute registered mortgage of the 3 Floors in favour of Bank 1 as security for the loan given to the Borrower by Bank 1.

As approach 2 may take more time, Bank 1 would like to follow Approach 1.

In these circumstances, you have requested us to consider both approaches and to give our legal opinion as to which approach will protect the interest of Bank 1. You have also asked us to take necessary steps for drafting the necessary documents.

OUR OPINION:

The Developer can only execute third party registered mortgage of the 3 Floors in favour of Bank 1 as security for the loan given to the Borrower by Bank 1, if the Developer were given that power by the Landowner vide the Irrevocable General Power of Attorney dated 30 November, 2000 executed by the Landowner in favour of the Developer (“IGPA”). From perusal of the IGPA, we could not find any such power given to the Developer by the Landowner. The Landowner vide clause 4 of the IGPA has only authorised the Developer “to take loan from any bank or financial institution against the security of the Scheduled property and construction made thereon and for that purpose to execute and register mortgage deeds creating legal mortgage on the Scheduled property or create equitable mortgage by deposit of the title deeds to execute and register any other deeds or documents to effectually complete the said project.” As such the Landowner has authorised the Developer to execute registered mortgage as security for their own loans NOT as security for a loan taken by a third party.

For the above reasons, we are of the opinion that approach 1 cannot be pursued legally. We advise Bank 1 to pursue approach 2, even though approach 2 would take longer. From perusal of the IGPA, we find that, vide clause 5, the Landowner has authorised the Developer to negotiate and enter into agreement for sale of so much of the undivided and undemarcated portions of the Scheduled property as the Builder is entitled to own in terms of the Deed of Agreement dated 24 August 2000 (“Development Agreement”). From perusal of the Development Agreement, we find that, vide clause 8, the Landowner is entitled to retain and own:

a)      Parking Space – 4992 sq. ft.

b)      Shopping/Official space & Community Hall in 1st Floor with separate stair – 8320 sq. ft.

c)      Commercial floor space area (2nd to 8th Floor) – 29,120 sq. ft.

d)      Commercial floor space area (9th to 13th Floor) – 19,552 sq. ft.

The remaining 3,25,416 sq. ft. of the constructed spaces of the Building shall be at the disposal of the Developer and the Developer may own it in its entirety or may transfer so much of it as it may decide. Therefore, from perusal of the IGPA and the Development Agreement it is not apparent as to whether the Developer has the authority to sell the 3 Floors being the 1st, 2nd and 3rd floor of the Building which the Borrower wants to purchase. Please ascertain the matter.

Before drafting the necessary documents in relation to the mortgage, the property has to be legally vetted to ascertain the ownership over the land. Please send us written instructions to vet the said land along with all relevant property documents. Only after vetting the property and after ascertaining the ownership over the same, we may go ahead with the drafting of the necessary documents in relation to the mortgage.

If you have any further inquiries please do not hesitate to contact us.

Thanking you.

Yours Faithfully,

………………….

For: “The Lawyers & Jurists”

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