What is a defeasance clause used for?

A defeasance clause is specifically used in real estate transactions to cancel a specified right or obligation upon the occurrence of a certain condition. This clause is often associated with loan agreements and is used to negate a borrower's obligations under a mortgage once the debt has been satisfied, such as when a property loan is paid off.

For instance, when a borrower fully repays their mortgage, the defeasance clause becomes relevant as it terminates the lender's rights to foreclose on the property and effectively releases the mortgagor from the obligations of the mortgage. This creates clarity in the relationship between borrower and lender, ensuring that once a loan is paid off, the borrower is no longer bound by that particular obligation.

The other options do not accurately describe the purpose and function of a defeasance clause. The clause does not pertain to additional borrowing, ensuring rental payments, or modifying lease terms; it is strictly focused on nullifying certain rights or liabilities contingent upon specific conditions being met.