REALWorld Law

Real estate finance

Real estate as security

Which assets and rights are considered to be real estate or real rights over which security can be granted to a lender?

Angola

Angola

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.

Australia

Australia

Real estate includes land as well as the buildings and other improvements and fixtures on the land. 

Title to land may be freehold (where an entity owns the land) or leasehold (where an entity owns the right to occupy and use land that is owned by a third party). 

Security may be granted to a lender over freehold land, an entity's interest in leasehold property, or over a lease of freehold land and may include fittings, furniture and moveable objects on the land. Where the government owns the land which is the subject of the lease, consent from the relevant government department may be required before a mortgage over the leasehold property can be registered.

Belgium

Belgium

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.

Bosnia-Herzegovina

Bosnia-Herzegovina

Real estate for these purposes consists of land and/or the buildings/construction on such land as well as a "construction right" in the Federation of Bosnia pursuant to the Rights in Rem Act.

Canada

Canada

Real estate includes land as well as the buildings and other improvements and fixtures on the land. A fixture is an item of tangible personal property that is permanently attached to a building or land so that it becomes part of the real property.

Title to land may be freehold (where an entity owns the land) or leasehold (where an entity owns the right to occupy and use land that is owned by a third party).

Security may be granted to a lender over freehold land or an entity's interest in leasehold property.

China

China

Buildings and land use rights are considered to be real estate over which security can be granted to a lender.

Chattels may also be used as security. A mortgage over chattels becomes effective when the mortgage agreement is executed, but it cannot take priority over a bona fide third party unless it is registered.

Croatia

Croatia

Security can be granted over plots of land, which are registered at the Land Registry, and rights to build, which are separate real estate interests.

Czech Republic

Czech Republic

Real estate is defined in the Czech Civil Code as including:

(i) plots of land

(ii) underground structures with a separate special-purpose designation

(iii) rights in rem and other rights defined as real estate by law

Structures connected to the land are considered to be part of the land.

A mortgage may also cover:

(iv) flats

(v) non-residential premises.

The rights included in a mortgage also affect associated facilities, additions and unharvested production from the land.

Real estate may also be the subject of the pledge of an enterprise in the case that the real estate belongs to such enterprise.

Denmark

Denmark

The security over real estate includes the land and the buildings that are erected on the land.

As a general rule, the security doesn't include moveable objects at the property. The security only includes fixed fittings.

France

France

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).

Assignment of receivables by way of security (cession Dailly à titre de garantie)

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:

  • an individual if the receivables arise from its professional activity, or
  • a company or an administrative entity.

The assigned debtor cannot be a final consumer. The security is granted by:

  • the execution by the assignor and the lender of a receivables security assignment agreement (providing for general terms and conditions applicable to the assignment but not required for the purpose of validity of the assignment), and
  • the remittance to the lender by the assignor of a form of assignment of receivables by way of security (acte de cession or bordereau) detailing in particular the receivables assigned. This bordereau must include mandatory provisions prescribed by law (in particular dealing with the purpose of the transaction) and must be signed by the assignor and dated by the assignee. The assigned debtor is not necessarily aware of the assignment but can be notified of such transfer by any means at any such time as the assignor and the beneficiary may agree.

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.

Delegation (délégation imparfaite)

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.

Reform of the French Security Law

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.

Germany

Germany

In terms of security creation, real estate generally includes:

  • The land
  • The buildings erected on the land
  • Fixtures which form an essential part of the buildings (wesentliche Bestandteile) eg heating installations and windows, and
  • Fittings (Zubehör) owned by the property owner

Occasionally, the land will be encumbered with a hereditary building right (Erbbaurecht) which entails that ownership of the land itself is split from the ownership of the buildings, fixtures and fittings which then belong to the holder of the hereditary building right. In such cases, the hereditary building right itself can be encumbered with a land charge (Grundschuld) or mortgage (Hypothek).

Hong Kong, SAR

Hong Kong, SAR

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.

Hungary

Hungary

Ownership title to real estate is the right over which the mortgage (and/or call option) can be granted. Only real estate registered in the Land Registry can be subject to a mortgage (and/or call option).

Ireland

Ireland

Real estate is not a defined term under Irish law but it is broadly equivalent to the concept of land/immovable property. The assets and rights which constitute land are defined under Irish legislation. Real estate will include the land itself, rights and easements, mines and minerals, buildings erected on the land (and fixtures which form part of those buildings) and the airspace above and subsoil below the land.

Fittings, furniture and moveable objects are not usually considered part of land but it is also possible to take security over such assets.

Title to land can either be freehold or leasehold and land is either registered in the Registry of Deeds or in the Land Registry. The Land Registry system of title registration is the more modern. A process of re-registering all land with the Land Registry is ongoing but as the usual trigger for re-registration is a change of ownership this process will take time.

Italy

Italy

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.

Title to land can either be freehold or leasehold. Note that for the purposes of Italian law a 'lease' needs to be distinguished from a 'leasehold' interest (diritto di superficie). A lease is only a contract granting a personal right to use the real estate asset and therefore it cannot be used as security in a mortgage; a leasehold interest is a 'real right' which can only be established by a notarial deed.

Other real rights, apart from leasehold interests, are the usufruct rights (right to use a property and its reserves), the emphyteusis (right to the reserves of the property only) and common ownership (ownership by multiple parties).

Japan

Japan

Real estate includes the land, buildings erected on it and objects that are attached to the real estate and form an integral part thereof.  It is also possible to take security over other assets, eg fittings, furniture and moveable objects that do not form an integral part of real estate.

Title to land can be either freehold, superficies, leasehold or emphyteusis (eikosakuken) (although the last is rarely encountered).  Mortgage can be taken over freehold, superficies and emphyteusis, whereas pledge can be taken over leasehold which is not very popular though.

Netherlands

Netherlands

Real estate includes the land, buildings erected on it, and fixtures which form part of those buildings. An indication whether a fixture is part of a building could be that the fixture and the building are specially fitted to each other.

If fixtures are not part of the building, it is also possible to take security over fittings, furniture and moveable objects by means of creating a right of pledge. A right of pledge can only be created in relation to transferable non-registered property (ie property which does not need to be registered in order to complete the transfer of that property).

Title to land can either be freehold or leasehold (erfpachtrecht). Note that for the purposes of Dutch law a 'lease' needs to be distinguished from a 'leasehold'. A lease is only a contract; a leasehold interest is a 'real right' or 'right in rem', and can only be created by means of a notarial deed.

Other real rights, apart from leasehold, are apartment rights, common ownership (mandeligheid), and right of superficies (opstalrecht).

Nigeria

Nigeria

The rights over which security can be granted include right of reversion, right of redemption and right of occupancy. A right of reversion is that which a borrower/mortgagor can grant to a lender as security which implies that the lender would be entitled to any reversionary interest which may arise from the property of the borrower/mortgagor.

A right of redemption implies that upon discharging a loan or mortgage, a mortgagor is entitled to re-possess his property. This right can be used by a borrower to acquire more loans and the right of redemption would then be bestowed on the lender as security for money loaned.

A right of occupancy is one created from acquisition of property. It is a right of ownership and possession. It can be granted as security to a lender.

Assets considered real estate are land, buildings, fixtures or machinery permanently fixed to land, property or building attached to land so that the law deems them to become part of the land.

A lender may create security interests over the above rights and assets

Norway

Norway

A pledge or form of security over 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 similar moveable property. However, where moveable property is not considered to be part of the pledgor’s stock or machinery and plant, the pledge must be perfected by way of the pledgor handing over the pledged goods to the pledgee or to a third party so that the pledgor no longer has physical access to the goods.

In the case of the pledgor’s stock and/or machinery and plant, this can be secured by registration of the pledge in the Moveable Property Register.

Poland

Poland

Real estate includes buildings and other facilities connected with it, as well as trees and other plants from the moment of having been planted or sown. Additionally, real estate comprises the rights bound to its ownership such as usufruct (right to the economic use of a property together with the right to collect money from it) or easement (which include real easements being rights that improve the utility of a property or personal easements such as a right of habitation).

Portugal

Portugal

Under the Portuguese Civil Code real estate is defined as an immovable asset. In addition to real estate, there are also other types of assets which are subject to the creation of rights which are not based on personal relationships, such as aeroplanes, ships and auto-vehicles.

Only those real estate assets and rights described in the Portuguese Civil Code can be encumbered as real security, subject to public register with the relevant Land Registry Office. These rights include:

  • Ownership
  • Surface rights
  • Right of usufruct
  • Right of use and habitation
  • Concessions of public domain
  • Right of possession
  • Earnings generated by immovable assets
  • Equity interests

The most common types of real security created over the rights listed above include:

  • Mortgages
  • Pledges
  • Possessory liens
  • Security interests on receivables
Romania

Romania

An immovable mortgage can be created only over real rights (e.g. a right of ownership or a right of usage/superficies) over properties which include land, buildings and improvements to buildings or movable assets naturally linked to the relevant immovable asset. The mortgage may be created only by the owner of the real right.

While as a general rule, the owner of a plot of land is also the owner of the buildings located on it, the ownership of buildings can be held separately from the ownership of the underlying land. In such cases, the owner of the building must have a right to use the land on which the building is located. This superficies right can also be subject to an immovable mortgage.

Slovak Republic

Slovak Republic

The Civil Code defines real estate as plots of land and buildings, which are connected to the ground by a solid foundation. Premises such as apartments and commercial and office space are also considered real estate.

Slovak law does not recognise the principle of "superficies solo cedit" (which means that ownership of a building is considered inseparable from ownership of a plot of land beneath it). Therefore, a building is not part of a plot of land on which it stands. Consequently, the owner of a building can be a different person from the owner of a plot of land beneath the building.

Mortgage as a form of a security can be established over each type of real estate mentioned above.

Spain

Spain

Real estate includes the land, buildings constructed on it and fixtures which form part of those buildings. It is also possible to take security over the bare ownership as distinct from the use, the right to build on the site or a concessionary right to use public land.

Sweden

Sweden

In order to create security on real property the pledgor creates a mortgage on the Land Registration Register (Fastighetsregistret). The mortgage represents a specified amount, of the real property, registered as available to be pledged as security. The document evidencing the mortgage is referred to as a mortgage certificate. The creation of security is perfected by the pledgor pledging and handing over the mortgage certificates to the pledgee as security for the relevant debt.

Thailand

Thailand

Land which has title documents and buildings which are located on such land are considered real estate over which security can be granted to a lender.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Real estate rights over which security can be granted include:

  • freehold title / absolute ownership;
  • usufruct rights (which are similar in nature to long term leases);
  • long-term leases; and
  • musataha rights (which are rights granted by a landowner to a third party to develop the land).
United Arab Emirates - Dubai

United Arab Emirates - Dubai

Real estate rights over which security can be granted include:

  • freehold title / absolute ownership;
  • usufruct rights (which are similar in nature to long term leases);
  • long-term leases; and
  • musataha rights (which are rights granted by a landowner to a third party to develop the land).
UK - England and Wales UK - England and Wales

UK - England and Wales

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.

Title to land can be either freehold, leasehold or commonhold (although the last is rarely encountered) although not all leases are considered good security. For instance, short leases at market rent have little value and most leases contain some form of forfeiture clause which allows the landlord to take back the property in certain circumstances. This is not satisfactory if one of those circumstances is the tenant's insolvency.

UK - Scotland

UK - Scotland

Real estate as security 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 by way of a pledge (or lien).

Title to land can be either heritable (full and unlimited in time) or leasehold, provided the lease is capable of registration in the Land Register of Scotland which means it must be for a term in excess of 20 years. However, not all registered leases are considered good security. For instance, most leases contain some form of ‘irritancy’ clause which allows the landlord to take back the property in certain circumstances. This is not satisfactory to a lender if one of those circumstances is the tenant's insolvency.

Ukraine

Ukraine

Ukrainian law provides that land, buildings/structures on it, unfinished construction works (subject to appropriate registration) as well as rights to use buildings/structures or land are considered to be real estate for the purposes of granting security to a lender to secure the repayment of money or other obligations.

United States

United States

Real estate includes the land, the buildings affixed to it, and fixtures which form part of those buildings. A fixture is an item of tangible personal property that is permanently attached to a building or land so that it becomes part of the real estate.

Zimbabwe

Zimbabwe

In Zimbabwe, real rights attach to land, buildings erected on such land and any fixtures, which form part of those buildings. The least commonly recognised real right is that which attaches to a registered long-term lease in terms  of section 65 of the  Deeds Registries Act (Chapter 20:05).