Which assets and rights are considered to be real estate or real rights over which security can be granted to a lender?
Real estate includes 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 these do not constitute real estate assets unless deemed, by law, part of the property).
A mortgage may also be taken over long-term leases (baux emphytéotiques).
Pursuant to article L. 313-23 of the French Monetary and Financial Code, any professional receivable held by a company against a third party can be assigned to the benefit of a credit institution or financial institution duly licensed in France or holding an EU passport or to the benefit of certain European long-term investment funds and certain alternative investment funds (as listed by the French Monetary and Financial Code) in their capacity as lender only to secure the company's liabilities as borrower only (such security cannot be used to secure liabilities incurred as guarantor).
The third party (the assigned debtor) can be either:
The assigned debtor cannot be a final consumer. The security is granted by:
The assigned receivables become the property of the assignee as from the date stated on the assignment form (bordereau). However, the standard practice on the French market is either (i) to allow the assignor to act as collection agent on behalf of the assignee and directly receive the assigned receivables from the assigned debtor or (ii) to organise the restitution of such receivables from the assignee to the assignor if following a notification to the assigned debtor the later pays directly to the assignee, in both cases, so long as an agreed event (default or event of default) has not occurred.
If, following the notification of the assignment to the debtor, receivables are paid directly by the assigned debtor to the assignee, the assignee will be under an obligation to return to the assignor amounts received in excess of the amount secured once all secured obligation irrevocably repaid in full.
Payment of receivables can also be directed to finance parties by means of a delegation (délégation imparfaite). Under a delegation, at the request of a debtor (délégant), a third party (délégué) undertakes to pay a creditor (délégataire) who accepts to be paid by the délégué, the latter usually being the debtor of the délégant. As a consequence, the délégataire has two debtors (the délégant and the délégué) and can request payment to the délégant if the délégué does not pay the délégataire.
Such mechanism is traditionally used when a borrower is an indemnified party under representations and warranties made in connection with an acquisition of shares. It may also be implemented in connection with insurance policies taken out by the borrower where the debtor under such policy may be “delegated” in payment to the lender.
There is no specific requirement as to form other than executing and delivering a written agreement signed by each of the délégant, the délégué and the délégataire.
As a delegation creates a direct obligation owed by the third-party debtor towards the beneficiary, insurers, for instance, may refuse to execute a delegation with respect to insurance policies such as a “decennial” insurance policy.
A French security interests law reform has recently been introduced pursuant to the ordinance n°2021-1192 dated 15 September 2021 which came into force on 1 January 2022 (the “Reform”). The Reform has an impact (mainly technical and from a drafting perspective) on the security package described above such as modifications regarding personal guarantees and mortgage security and creation of a new civil assignment of receivables by way of security as an alternative to the Dailly assignment by way of security.