As far as the financing of real estate investments is concerned, both private individuals and legal entities may invest in Belgian real estate, whether outright or via the means of a company. These entities may obtain loans for this purpose, from both Belgian or foreign banks or other lenders, in principle without any restriction or limitation.
The most common forms of security in relation to real estate finance are:
A mortgage can be defined as the grant of a charge by the mortgagor (who may or may not also be the debtor) over real property (owned by that mortgagor/debtor) in favour of the creditor (mortgagee), security for the debt owned by the mortgagor/debtor. A mortgage must be created by means of a deed drawn up by a notary public and must be registered with the Office of Legal Certainty (bureau de Sécurité Juridique/Kantoor Rechtszekerheid)in order to be enforceable against third parties.
For the creditor, the benefit of a mortgage is that it gives him a preferential right over his debtor’s mortgaged assets, as against most secured and against all unsecured creditors. In the event that several mortgages are granted over the same property, the ranking of the mortgages will depend upon the time of their registration (the mortgage first registered/entered will rank first). The registration of a mortgage is valid for 30 years as from registration and is renewable.
Another benefit of a mortgage is that it remains attached to the property over which it is granted, and therefore it remains unaffected by subsequent changes in ownership.The mortgage can only be released after repayment of the debt to the mortgagee in accordance with the terms of the mortgage deed or with the agreement of the creditor. A mortgage does not only have to relate to the right of ownership, but can also have as its object the right to usufruct, a bare ownership right, a long lease right or a building lease right on a property.
The total secured amount must be specified in the mortgage deed and will be the basis for the calculation of the applicable taxes and fees.
In order to reduce the substantial registration duties and fees related to the granting of a mortgage, it is a common practice in Belgium to split the mortgage into (i) an effective mortgage and (ii) a mortgage mandate. With this technique, the chargor only grants effective security for a fraction of the agreed secured amount, and a mandate for the balance.
The mortgage mandate is an agreement between the chargor and representatives of the lender pursuant to which those representatives (acting in their own name and not in the name of the lender) are granted the power to establish a mortgage.
Note, however, that the mandate itself does not create an actual security interest in the asset, but only a mandate to grant such security interest at a later point in time. Only at that point, namely upon the conversion of the mandate and the registration of the mortgage in the Office of Legal Certainty, the security interest will obtain its ranking and the registration fees will be due. As a result, any mortgage established before the conversion of the mandate, will be prior in ranking. Furthermore, any conversion of the mandate within a suspect period (which can be fixed by the commercial court as up to six months prior to bankruptcy) can be voided by the bankruptcy court.
Despite this mortgage mandate technique, it remains customary in Belgium for lenders to take an effective mortgage for at least a portion of the secured obligations, in order to secure ranking for a portion of the secured amount and to raise awareness towards potential other creditors as to the existence of outstanding secured financing.
A pledge over receivables can be entered into by private agreement. Under Belgian law, a pledge over receivables is valid between parties, and enforceable against third parties (other than the debtor of the pledged receivables) as from the date of its conclusion, provided that the pledgee is entitled to notify the debtor of the pledged receivables of the pledge. However, in order to be enforceable against the debtors of the receivables, the debtors must be notified of the pledge or the pledge must be acknowledged by the debtor, by lack whereof a payment by the debtor to the pledgor is valid and the debtor cannot be held liable to make a second payment to the pledgee.
A security interest over bank accounts is created through a pledge over claims, rights and receivables in connection with monies credited to a bank account and any similar claims, rights or receivables for restitution of monies.
A pledge over bank accounts is enforceable between the parties as from the date of the pledge agreement and against third parties (other than the account bank) upon the entry into the (private) pledge agreement provided that the bank accounts are sufficiently determined or determinable on the basis of the pledge agreement.
A pledge over bank accounts will be enforceable towards the account bank upon notification to, or acknowledgement by, the account bank.
An acknowledgement by the bank holding the pledged accounts is required in order to protect the pledgee against risks arising out of rights afforded to the bank pursuant to its general conditions or otherwise (a bank usually benefits from a right of pledge over the accounts held by its clients, which must be waived in favour of the pledgee).
Where the purchaser or borrower intends to buy shares in a real estate company rather than the property directly, the lender will usually be offered a pledge over the shares to be purchased, as security.
Where the borrower is a shareholder of substance (being a shareholder with a large and/or important share portfolio), the lender may take a pledge on the borrower’s shares portfolio. This particular type of pledge may also be of interest where a holding company wishes to grant a security for a loan taken by one of its subsidiaries.
For the lender, the benefits of such a pledge rests in his effective control over the borrower’s shareholding as the borrower cannot dispose of the shares without notice to and the agreement of the pledgee.
In principle, the rights inherent to the shares (such as voting rights, participation in dividends or new issues or other similar rights) will be retained by and can be exercised by the pledgor as long as he is the owner of the shares. The pledge agreement, however, will usually contain certain restrictions on the pledgor and provide that the pledgee is to exercise such rights for instance in the case of an event of default under the financing.
A pledge over the shares in a Belgian company is entered into by private agreement.
A pledge over shares should be recorded in the share register of the borrower in order to be valid against third parties.
Movable assets can be pledged by way of a private agreement and can be perfected by means of registration in the Belgian National Pledge Register or by way of dispossession. All moveable assets, tangible and intangible, in whole or in part, which are capable of being transferred can be pledged.
This security will be valid between the parties to it from the date it is concluded but, in order to be enforceable against third parties, the pledge must be registered in the Belgian National Pledge Register or be perfected by means of dispossession. The registration in the Belgian National Pledge Register will be valid for a renewable period of 10 years.
This type of security is less relevant in the case of a pure real estate property financing.
Finally, a lender can request personal or corporate guarantees, which is often relied upon by a lender as an additional ‘top-up’ security and is favoured by holding companies in respect of loans granted to their subsidiaries. Guarantees can be for the total amount borrowed or can be limited to interests payable or the short-fall in value (‘deficiency’) or to any particular amount.
Guarantees should be within the limits of the guarantor’s corporate interest, and as such, particular attention must be given to this when structuring and documenting such arrangements. Therefore, for companies, guarantees are usually made subject to limitations.
The personal guarantee does not give the lender security over the borrower’s assets. As such, it cannot give the lender priority over either secured or other unsecured creditors of the guarantor (unless security is granted to secure the guarantee obligations of the guarantor). The only benefit of a guarantee is that the lender is able to claim against two companies instead of one and in this way may ‘spread’ his risk.
Last modified 13 Jun 2024
Real estate includes the land, buildings erected on it and fixtures which form part of those buildings.
It is also possible to take security over fittings, furniture and moveable objects but in the latter case, a registration in the National Pledge Register is required in order to ensure validity and enforceability.
Security can only be granted over real estate to the extent of the rights a party has over the real estate. For example, in the case of a long lease (emphytéose/erfpacht), a party can only mortgage the real estate in question within the limits of the long lease.
Last modified 13 Jun 2024
Belgian civil law does not recognize the concept of trust as such.
Last modified 13 Jun 2024
In Belgium debt can be traded between lenders. The loan and other finance documentation will usually provide for specific procedures to effect such transfers (either through syndication or subsequent transfers).
Belgian law makes a distinction between the transfer of debt, the transfer of a claim, or the transfer of the entire agreement. The transfer of debt (on its own, or as part of the transfer of the entire agreement) will only be enforceable with the consent of the creditor of that debt, while the transfer of a claim (on its own, or as part of the transfer of the entire agreement) is exercisable by the lender at its own discretion and will be enforceable against the borrower following notification or acknowledgement of the transfer (unless the relevant agreements provide for conditions such as prior approval). An act has made assignments of ‘bank claims’ easier and has confirmed certain principles in respect of the assignment of secured claims. These principles should be taken into account given that this act appears to have unintended consequences in certain circumstances.
Whenever the claim is assigned to a third party by the mortgagee, the mortgage as security for the loan will follow. In order to be enforceable against third parties, the transfer must be notified to the mortgage office (inscription en marge/kantmelding).
In relation to mortgages, Belgian law does not recognize the concept of security agent, and as such a parallel debt structure must be set up in order to secure a changing pool of lenders.
Last modified 13 Jun 2024
There are no legal restrictions on granting security to foreign lenders.
As far as the financing of real estate investments is concerned, both private individuals and legal entities not resident in Belgium, may invest in Belgian real estate, whether outright or via the means of a company, and may obtain loans for this purpose from both Belgian or foreign banks without (in principle) any restriction or limitation. However, by virtue of Belgian domestic tax law and certain Belgian tax treaties, the source of the interest payment may be considered to lie where the real asset is located, ie in Belgium. In such cases, the borrower can be liable to pay a withholding tax on the interest payments to the bank. The payment of such withholding tax could turn out to be significant for the lender or, if a gross-up is provided for in the loan agreement, for the borrower.
Last modified 13 Jun 2024
The following indirect taxes and fees are payable upon the obtaining of a mortgage loan and a pledge over the business or movable assets:
In addition to such taxes, notary fees must be paid in relation to any notarial deed such as a mortgage deed.
With respect to other forms of security such as a pledge over shares, a pledge over receivables, a pledge over bank accounts and guarantees, no substantial taxes or fees will be due. Only a lump sum duty of EUR0.15 on certain finance documents executed in Belgium (payable on each original of a finance document within the scope of the duty) is due.
Last modified 13 Jun 2024
Legal restrictions on providing security by Belgian companies are, as a rule, mainly driven by:
The granting of a security by a Belgian company should comply with the Belgian financial assistance rules.
The Belgian rules on financial assistance apply to public limited liability companies (NV/SA), private limited liability companies (BV/SRL) and co-operative limited liability companies (CV/SC).
Under the new Belgian Companies and Associations Code, it is permitted for a company to advance funds, grant loans or provide security, with a view to the acquisition or the subscription of its shares or profit-sharing certificates by a third party, provided the following stringent conditions are met:
A transaction breaching the financial assistance rules may be declared null and void upon the request of any interested party. Such nullity will not necessarily be limited to the transaction itself but may also affect all connected transactions, which would not have occurred without the relevant act or which led to the existence of the unlawful legal scheme that was set up, as far as these transactions were willingly performed by all the parties involved.
In order for a Belgian company to validly grant security, the company will have to ensure that:
The corporate purpose of a Belgian company is set out in its articles of association and Belgian companies can only act within the boundaries of this corporate purpose. Transactions entered into by a Belgian company which are deemed not to fall within its corporate purpose can be nullified and result in liability for the directors.
The granting of a security by a Belgian company must always be in the company’s corporate interest. However, as this mainly depends on the factual situation (such as the benefit that the company will obtain from the transaction as a whole) this remains a vague concept. Under Belgian law there is no legal concept of group interest. Benefit to the group is not sufficient. It must be clear that the company will derive a direct or indirect benefit from the transaction that is being guaranteed.
Corporate benefit justifications may be that the guarantor is able to benefit from lower interest rates or better conditions or that the parent company will provide inter-company loans to the subsidiary. It is general practice in Belgium to include guarantee limitations including any or a combination of limitations:
Under Belgian law, directors have a duty to act in the interest of the company.
There are other corporate law issues which include rules relating to capital maintenance, restrictions on transactions between a company and connected parties, and provisions relating to bankruptcy, which must be complied with.
Last modified 13 Jun 2024
There are no general legal restrictions on payments made to foreign lenders under a security document or loan agreement.
As far as the financing of real estate investments is concerned, both private individuals and legal entities not resident in Belgium may invest in Belgian real estate, whether outright or via the means of a company, and may obtain loans for this purpose from both Belgian or foreign banks without any restriction or limitation. However, by virtue of Belgian domestic tax law and certain Belgian tax treaties, the source of the interest payment may be considered to lie where the relevant real estate asset is located, ie in Belgium. In such a case, the borrower can be liable to pay a withholding tax on the interest payments to the bank. The payment of such withholding tax could turn out to be significant for the lender or, if a gross-up is provided for in the loan agreement, for the borrower.
Last modified 13 Jun 2024
Yes, in Belgium it is possible for existing secured debt to become postponed to newly created debt.
The most common technique is contractual subordination.
During the existence of a debt, a creditor can agree to subordinate its security interest to that of another creditor.
Last modified 13 Jun 2024
It is not usual in Belgium to provide for foreign law security documents in relation to assets located in Belgium. One must also consider the international private law rules when determining which law the security should be subjected to, as set out below, in particular in relation to perfection requirements.
Indeed, where the asset that is the subject of the security is situated in another country, a security document governed by the law of that country will often be appropriate, and the choice of that law will be recognized by the local courts subject to certain restrictions.
Last modified 13 Jun 2024
A distinction must be made between the validity of a security between parties and the perfection of the security against third parties. Between parties a security will generally be considered valid following execution of the security document. The formalities to be complied with in order for a security document to be enforceable against third parties, depend upon the type of security.
A mortgage and the conversion of a mortgage mandate must be executed as a notarial deed and registered with the Office of Legal Certainty (bureau de Sécurité Juridique/Kantoor Rechtszekerheid) to be enforceable against third parties.
A pledge over movable assets must be registered in the National Pledge Register or be perfected by means of dispossession.
A pledge over receivables and bank accounts is valid against the debtor of the receivables or the institution where a bank account is held, on notification to or acknowledgement by such debtor or institution.
A pledge over shares is enforceable against third parties (including the company whose shares are pledged) upon registration of the pledge in the relevant share register.
If the security is not perfected as set out above, the security will not be enforceable against third parties, including the mass of creditors in an insolvency.
The rights of mortgage and movable security which have been validly obtained may be registered or recorded until the day of the judgment of bankruptcy. Entries or registrations taken after the time of cessation of payment may be declared unenforceable if more than 15 days have elapsed between the date of the deed from which the mortgage or privilege follows and the date of the entry or registration.
Security interests established after the date of cessation of payments that is intended to secure a debt that existed prior to the date of the establishment of the security interest may be declared ineffective and unenforceable against the mass of creditors. This is the "suspect" period that may be fixed by the competent court in an insolvency and which cannot exceed six months prior to the bankruptcy order.
Last modified 13 Jun 2024
A holder of security over real estate is not liable for environmental damage provided it does not take possession of the real estate, and does not itself cause damage. Facility agreements usually provide for certain representations and covenants in order to mitigate the risk of reputational damage.
Last modified 13 Jun 2024
For the enforcement of a mortgage, the pledgee will first have to obtain an executory title (by obtaining a judgement or by including such executory in the mortgage deed), send a payment order to the debtor and proceed with the executory attachment and the enforcement through court. The court will then decide if the mortgage will be realised by public or private sale.
With regard to pledge agreements entered into by a pledgor, the pledgee can, with the permission of the pledgor, to be granted in the pledge agreement or at a later stage and subject to satisfying certain conditions, appropriate the pledged assets without prior court approval. In the case of a pledge over financial instruments, the beneficiary of the pledge is allowed to appropriate the financial instruments if this is expressly permitted in the pledge agreement, and the valuation method is stipulated in the pledge agreement. Pledged receivables can be collected by the beneficiary of the pledge provided the pledge has been notified to the relevant debtors.
Last modified 13 Jun 2024
Book XX of the Belgian Economic Law Code provides certain procedures aimed at allowing the continuation of businesses where it is economically possible. It is possible to distinguish between the pre-procedural phase on the one hand and the judicial reorganization and transfer under the court’s supervision on the other:
Under this phase, the debtor can negotiate an amicable settlement with one or more of his creditors with a view to restructuring part or all of its assets and activities, without entering into a judicial reorganization. The content of this agreement can be decided freely by the parties and is not opposable to third parties not involved in the agreement. Should the company ultimately fail, these settlements are bankruptcy proof.
This decision shall not be published or notified. It is not open to appeal. Where appropriate, the president of the court may, at the debtor's request, appoint a restructuring expert (médiateur d’entreprise/herstructureringsdeskundige) to facilitate the execution of the amicable settlement.
The BELC distinguishes between two main types of judicial reorganization measures:
Both of these types can be either public (with a further differentiation between procedures for SMEs (Article XX.66/1 et seq. BELC) and large companies (Article 83/1 et seq. BELC)) or private. In the case of a private judicial reorganization by amicable or collective agreement, all proceedings will be confidential except for the debtor or the practitioner, the court and the specific creditors involved.
If the commercial court grants one of the forms of judicial reorganization, a suspension period is imposed, during which the debtor cannot be declared bankrupt nor be wound up by a court order if it is a legal entity, and no enforcement measures can be taken. The commercial court appoints from amongst its members a ‘delegated judge’ (juge délégué/gedelegeerde rechter), who will assist the debtor and supervise the procedure.
In this procedure, the debtor is protected against his creditors. The debtor must demonstrate that the continuity of his business is threatened. If the debtor is a legal entity, the business continuity is presumed to be threatened when losses have reduced the company’s net assets to less than half of its share capital.
In the case of a judicial reorganisation by collective agreement, large companies have to group creditors into separate ‘classes’. A restructuring plan is approved when a majority is achieved within each class, meaning that creditors representing at least 50% in value of the creditors belonging to that class, vote in favour. Exceptionally a plan can still be confirmed by the court even if not all classes have approved the plan, provided that the conditions in article XX.83/17 or XX.83/37 of the BELC are met (cross-class cram-down).
Initially, a transfer under court’s supervision was a reorganization procedure, however this is no longer the case for transfers opened as of 1 September 2023. The transfer under court’s supervision provides that the commercial court orders or at least supervises the transfer of all or part of the debtor’s business. Since 1 September 2023, the transfer must be followed by liquidation or bankruptcy proceeding of the debtor.
Last modified 13 Jun 2024
In the event of the bankruptcy of the borrower, the secured creditors will be paid off according to the rank and chronological registration. Unsecured creditors rank behind secured creditors and rank equally between themselves.
There is however the risk of the ‘suspect’ period prior to the declaration of bankruptcy which may render securities which were granted within the ‘suspect’ period invalid.
Last modified 13 Jun 2024
Once the borrower goes into bankruptcy, the mortgagees or creditors will be paid off according to their rank and the timing of the registration of their respective secured interests. However, all mortgage securities registered on the same day are creditors of equal rank and will be paid off pro rata.
As between the holder of a pledge over the business and a mortgagee, where both creditors have an interest in the same security (ie fixtures in a building), the one whose interest was registered first will take priority over the other, even if this is a matter of hours and minutes, as is the case in determining priority between all holders of a pledge over the business.
Unsecured creditors rank behind secured creditors and rank equally between themselves. Belgian law also provides for certain legal privileges for certain types of creditor (for instance certain administrative bodies, unpaid seller’s privilege or tenant’s privilege in relation to moveable assets located in the leased premises).
Last modified 13 Jun 2024
Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
In Belgium debt can be traded between lenders. The loan and other finance documentation will usually provide for specific procedures to effect such transfers (either through syndication or subsequent transfers).
Belgian law makes a distinction between the transfer of debt, the transfer of a claim, or the transfer of the entire agreement. The transfer of debt (on its own, or as part of the transfer of the entire agreement) will only be enforceable with the consent of the creditor of that debt, while the transfer of a claim (on its own, or as part of the transfer of the entire agreement) is exercisable by the lender at its own discretion and will be enforceable against the borrower following notification or acknowledgement of the transfer (unless the relevant agreements provide for conditions such as prior approval). An act has made assignments of ‘bank claims’ easier and has confirmed certain principles in respect of the assignment of secured claims. These principles should be taken into account given that this act appears to have unintended consequences in certain circumstances.
Whenever the claim is assigned to a third party by the mortgagee, the mortgage as security for the loan will follow. In order to be enforceable against third parties, the transfer must be notified to the mortgage office (inscription en marge/kantmelding).
In relation to mortgages, Belgian law does not recognize the concept of security agent, and as such a parallel debt structure must be set up in order to secure a changing pool of lenders.
Last modified 13 Jun 2024