Country - Belgium
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
The Civil Code contains all general provisions connected with sale and purchase agreements. The Mortgage Law governs the registrations that have to be undertaken with the Mortgage Register when real estate is transferred. Finally, some regional decrees contain specific formalities that have to be complied with from an environmental and zoning law perspective.
Is the purchase of real estate assets by foreign investors subject to restrictions?
No.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
No. However, depending on the location of the real estate, i.e. the Flemish region, Walloon region or Brussels Capital region, different environmental regulations may apply. The location will also affect the applicable registration duties regime (see below) and the activities that can be conducted on the property according to zoning regulations.
Do mandatory pre-emption rights apply to the sale of real estate assets?
Depending on the location of the real estate, different regional pre-emption rights may apply, mostly with respect to areas designated for housing. Under certain circumstances pre-emption rights will apply to social housing companies and certain public entities. Real estate which is deemed empty or in decay may also be subject to pre-emption rights.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Expropriation of real estate is possible only for reasons of public interest. It follows a strict procedure, including compensation for the owner.
Is real estate registered?
If so, is this official information made available to the public?
Yes, real estate is registered in the Land Register (cadastre). In addition, certain transactions relating to real estate, such as mortgages, leases with a duration exceeding nine years and transfers of rights, are registered in the Mortgage Register.
The information contained in both the Land Register and the Mortgage Register is available to the public.
Is transfer of title recorded?
Can other related deeds (for example, preliminary sale agreements) be recorded?
Yes, transfers of title must be notified by the public notary who submits the deeds to the Mortgage Register and the Land Register. Other deeds related to the transfer of title which must be registered include lease agreements, provided the duration is more than nine years.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example, an exclusive right to negotiate or buy)?
Professional buyers carry out due diligence, which is particularly important for assessing any environmental issues and liabilities. In addition, due diligence provides an opportunity to verify whether there are any liens on the real estate. Due diligence typically takes place prior to the execution of the contract, but the parties are free to agree that it will be performed after execution. The contracts would then normally contain specific protection measures for the buyer during the due diligence period, such as exclusive rights to buy.
Is title insurance available?
Title insurance is unusual in Belgium.
How are deals typically structured?
Deals are either structured as share purchases or asset purchases, i.e. a buyer can either purchase real estate directly or shares in a company owning the real estate. The latter is often chosen in order to avoid registration duties, but has associated risks (see below).
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
No. Parties are generally free to structure the contract as they wish, except for some legal requirements. The contract can be drafted either as an asset purchase or as a share purchase.
If the purchase agreement is drafted as an asset purchase, it is contained in a deed passed in the presence of a notary public within four months following the signing of the initial agreement. Presentation to the registration duty collector and payment of the applicable duty is required within the same four-month period. This obligation does not apply to share purchase agreements.
What is a typical contract like?
Common features of both asset purchases and share purchases include: a description and the identity of the parties; details of the real estate or shares being bought; and the price.
In the case of an asset purchase, a sale agreement (compromis de vente/verkoopcompromis) is first drafted and signed. This constitutes an actual agreement transferring the ownership of the real estate, but is different from the notarial deed which must be completed within four months of the signing of the sale agreement. The transfer of ownership can only be protected against claims by a third party when the deed has been registered with the Mortgage Register.
Essential clauses in the sale agreement are as follows:
- a clause dealing with the transfer of ownership and/or on the reservation of title;
- a clause dealing with the enjoyment and possession of the real estate, the transfer of risk and subsequent insurance;
- a clause regarding the end use of the real estate and the zoning and urban planning (regional) legislation;
- a description of the status of the real estate (third party rights);
- a clause dealing with the sale costs and charges, as well as on taxes and other duties;
- a clause dealing with any condition precedents, for example regarding pre-emption rights, soil pollution, environmental permits, credit or loan agreements etc;
- special conditions related to the title, for example conditions of obligatory joint ownership, easements or other rights etc;
- a clause dealing with the choice of notary public;
- a clause dealing with the time limit for drafting the notarial deed;
- a penalty clause;
- an insurance clause.
Recently, some asset deals have, for tax purposes, and subject to certain conditions, been structured as vesting a long lease right and transfer of residuary real rights to separate legal entities.
A share purchase transfers ownership in a company owning or holding the real estate. It is not a legal requirement that a notarial deed is executed: a private agreement is sufficient. The agreement will include the representations and warranties relating to the shares and their ownership, and to the real estate concerned. The clauses listed above for asset purchase contracts can therefore also be used in a share purchase contract.
Are special consents required for certain transactions (for example, consent by a spouse)?
Consent by a spouse may be required when the real estate includes property held by both partners.
Consent by local authorities which have certain rights with respect to the real estate may also be required.
What seller’s warranties are provided under statute (for example, the state of the building, asbestos etc)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
In the case of an asset purchase, the Civil Code provides that all sellers are to guarantee two things:
- they must warrant the unrestricted use of the property to the buyer. This protects against obstacles to unrestricted use by the action of the seller, and by the actions of any third parties who claim to have rights over the real estate;
- they must also warrant that the property sold is free from invisible defects.
The parties can agree to extend or limit these obligations.
Furthermore, specific legislation can impose additional warranties on the seller.
The obligation to guarantee unrestricted use is, in principle, subject to the usual time limit of 30 years. Complaints about hidden defects, on the other hand, must be made "on short notice" to ensure the defect existed when the purchase agreement was signed and did not occur later. The parties can, however, specify a revised deadline in the purchase agreement.
If the purchase agreement is structured as a share purchase, the legal warranties only relate to the shares, not to the real estate which the company owns. In this case, therefore, additional contractual representations and warranties are needed.
Claims following the breach of a legal or contractual warranty have a general time limit of 10 years. However, it is common practice for this time limit to be reduced in the purchase agreement.
What are the buyer’s remedies against misrepresentation by the seller?
In the case of an asset purchase, the buyer is protected by statutory legal warranties.
The seller must guarantee the buyer free and unlimited use of the real estate, including protection against any disturbance by the seller, or against the seller claiming any rights to the property transferred.
If the warranties are breached, then the buyer can claim compensation, or even dissolve the transaction (by obtaining a court order).
The seller must also indemnify the buyer against legal action by third parties where the cause of action existed before the contract was concluded (although this can be limited in certain circumstances). If a claim by a third party is successful in these circumstances then the buyer can claim retrospective annulment of the transaction.
The seller must guarantee that the property is free from any existing invisible defects which prevent it from being used for the purpose for which it was bought.
The buyer can choose either to dissolve the transaction and receive full reimbursement, or to keep the property and receive a partial reimbursement of the purchase price.
Alternative remedies can be agreed upon by the buyer and seller.
In the case of a share purchase, however, remedies for misrepresentation depend on the contract.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
Yes.
The most extensive interest in real estate after full ownership is a "usufruct", or a right to use the property concerned and to benefit from its profits and/or products. This excludes the right to transfer or to demolish the property. A usufruct is always linked to the property itself, ending either on the death of the individual granted the right, or after 30 years if a legal entity has been granted the right. Other real estate rights include the "right to use or to inhabit" property. This is similar to the right of usufruct, but cannot be transferred since it is only granted to a specific individual.
Long leases (emphytéose/erfpacht) can be granted, giving the right to use and build on the real estate concerned in return for payment of an annual ground rent.
A long lease is normally granted for a minimum of 27 years and a maximum of 99 years.
Building rights (superficie/opstal) can also be granted, allowing buildings to be erected on the property. When the building rights granted come to an end, the property owner will acquire the rights to these, either with or without payment. Building rights can be granted for a maximum, renewable period of 50 years. Please note that both long leases and building rights are commonly used in tax driven agreements.
Finally, the right of "easement" (servitude/erfdienstbaarheid) allows one property to be used in such a way as to facilitate the use of another property. Easements can remain in force for unlimited or limited periods of time. The former are legally linked to the right of ownership of the property concerned (for example easements to refrain from building on real estate located next to airports, or to access to public roads). The latter can be agreed between parties.
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
Planning and zoning regulations must be checked. These vary depending on location. Generally, the Flemish, Walloon and Brussels Capital regions have each adopted their own regional zoning regulations. These provide the framework for local/municipal regulations.
Similar regional variation applies in relation to environmental rules. In the Flemish region, where environmental rules are most developed, all real estate sales must be accompanied by an investigative soil survey when certain hazardous activities have been, or are being, carried out. If contamination is found, a descriptive soil survey must be conducted; this may identify a clean-up obligation.
The Walloon region adopted its own Soil Clean-Up Act, aimed at safeguarding the quality of soil in the region, on 1 April 2004 but this has not yet come into force. The Walloon Government has also listed activities that pose a risk of soil pollution. A preliminary soil investigation is required before any of these listed activities can be legally terminated. If this assessment concludes that soil pollution is present, a risk assessment is also required. Where appropriate, the risk assessment will recommend a soil clean-up operation which the property user must carry out and finance.
On 13 May 2004 the Brussels Capital region also adopted a Soil Clean-Up Act. A preliminary soil investigation must be carried out before the transfer of rights to real estate where hazardous activities are being, or will be, carried out. This is also required before commencing or terminating hazardous activities. The person transferring the real estate must bear the cost.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
The regulations concerning responsibility for soil pollution vary between the Flemish, Walloon and Brussels Capital regions.
According to the decree on soil remediation in the Flemish region, the following individuals are liable for carrying out clean-up operations:
- anyone carrying on an activity on the polluted soil for which an environmental permit is required; or
- in all other circumstances, the owner of the real estate, unless he can prove that someone else has actual control of the property on his own account: if this is the case then that other person will be held liable for soil remediation.
The people listed above will not be held liable, however, if they can prove that they did not cause the soil pollution; that, at the time their liability arose, they did not know of any pollution, and that no activity mentioned in the list of hazardous activities has been carried out on the land since 1 January 1993. In this case the Flemish public waste agency (OVAM) will carry out soil remediation.
In the Flemish region a distinction is made between the person liable for carrying out soil remediation and the person responsible for paying any associated costs. In some cases the person liable for carrying out soil remediation may be able to reclaim any costs from the person responsible for the pollution.
In the Walloon region, the Soil Clean-Up Act (which has not yet come into force) holds the following (jointly) liable for soil remediation:
- the person who entered into an environmental agreement with the appropriate public agency;
- the person who caused the pollution;
- if neither of these people can be identified, if it is difficult to attribute responsibility to them, or if they are insolvent, then liability rests with the owner, the long leaseholder, the holder of a building right or the usufructuary of the real estate.
Under certain conditions, exemption from soil remediation liabilities or their transfer to a third party may be possible.
In the Brussels Capital region, the Soil Clean-Up Act of 1 April 2004 imposes the liability for soil remediation on the person who carried out the risk assessment with a view to transferring the real estate or the environmental permit. However, where the pollution has been fully assessed and can be treated accordingly, that person is only held liable for soil remediation for the pollution they have caused themselves.
If those liable for soil remediation have not accepted their responsibilities, the buyer and the Brussels Environmental Agency (IBGE/BIM) can dissolve the transaction.
The owner or user of a building may also be required to comply with other legal regulations, such as health and safety regulations.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
Depending on the region, different zoning and planning regulations apply and different categories of regulation have been adopted. Zoning regulations and requirements can be consulted by any interested person. Uses can only be changed by the regional authority.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
It is possible to enter into a specific development agreement with the relevant authority, but this is rarely done since these agreements are not easily enforceable. However, public private partnerships have recently become more common.
The Flemish region was the first region in Belgium to provide a legal body for public private partnerships, with its decree on public private partnerships of 9 July 2003. Various types of collaboration between public authorities and private partners are possible: public private joint ventures allow the public and private partners to develop, finance, build, and manage or operate a project, and also jointly share the risks that the project entails. In the case of public private concessions, private parties discharge the government's responsibilities, such as the supply of roads, railway infrastructure, school buildings, police stations, prisons and libraries.
Specific legislation on economic (re)development entitles certain local authorities to sell real estate to private partners under specific conditions relating to, for example, employment, authorised activities etc.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
In the case of an asset purchase, registration duties (registratierechten/droits d'enregistrement) and/or VAT (Belasting over de Toegevoegde Waarde – BTW / Taxe sur la Valeur Ajoutée - TVA) may apply. In principle, share purchases are not subject to any indirect taxation, whatever the assets held by the company. However, certain anti-abuse rules may apply in extreme cases.
The transfer of ownership, or the setting up or sale of a usufruct on immovable assets located in Belgium, is subject to a 12.5% registration duty (10% in the Flemish region), calculated on the contractual price or the market value, whichever is higher. Under certain conditions, a reduced registration duty rate of 5% (8% in the Brussels region) applies to purchases by corporate entities (or individuals) whose business activities mainly consist of buying and selling real estate.
The creation or acquisition of a long lease or building rights are alternatives to purchase. These can be granted for a very long period (up to 50 years for building rights and up to 99 years for long leases). Where not subject to VAT, these are generally subject to registration duties at a rate of 0.2%, calculated on the total price and charges imposed on the lessee or the beneficiary of the building right. In certain circumstances, however, the establishment of long leases and building rights might be deemed by the tax authorities to constitute a sale. The normal 12.5% (10% in the Flemish region) duty is then payable on the market value of the full ownership.
A contribution in kind of an interest in real property into the share capital of a Belgian company, or the transfer of such property through a merger or demerger, are generally not subject to registration duties based on value or VAT (only a fixed duty of EUR 25 is payable upon registration of the notarial deed). This also applies to the acquisition by a company of a wholly owned subsidiary (the simplified merger procedure). An exception is made for buildings designated for private use, if the contribution is made by an individual (a 12.5% or 10% registration duty is payable).
The transfer or grant of real rights over "new buildings" can be subject to VAT (at 6%, 12% or 21%). In this case, no registration duties will be due on the value of the building, but only on the value of the land.
A newly constructed building is considered to be "new" for VAT purposes until 31 December of the second year after it is first put into use (this also applies to renovated buildings which have been substantially structurally modified or which have been given a new designation or function).
In case of a transfer of a going concern under articles 11 and 18 (3) of the Belgian VAT Code which includes an interest in real property, no VAT will be due on the transfer of the property (although in some cases registration duties may apply). In addition, even where the real property does not qualify as a "new building", there will be no effect on input VAT incurred by the transferor which has previously been reclaimed, as in such cases the transferee will be deemed to assume all the rights and liabilities of the original owner.
What are the normal transaction costs?
A notarial fee (determined by law) is due at a rate of between 0.057% and 4.56% on the transfer value of the property.
Other costs include the fees of professional advisers, as well as stamp duty on the notarial deed. Stamp duty must be paid to the notary public before the deed is registered.
Finally, indirect taxes are payable on the subscription of a secured loan:
- 1% registration duty, calculated on the basis of the guaranteed debt; and
- 0.3% mortgage tax, calculated on the same basis.
How are transaction costs shared by the buyer and seller?
Although both parties are jointly liable for registration duty, according to Belgian civil law, all costs related to the notarial deed (such as transfer taxes) are the responsibility of the buyer. However, the parties can agree that the seller will instead bear this cost.
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