REALWorld Law

Real estate finance

Trusts

Is the concept of a trust or a split between legal ownership and beneficial ownership recognized?

Angola

Angola

No. These concepts are not recognized under the laws of Angola.

Australia

Australia

Australian law recognizes the concept of a split between legal ownership and beneficial ownership. A split between legal ownership and beneficial interest will occur where a trust is formed so that a trustee owns (or will own) the property on behalf of a beneficiary. The trustee will hold the legal ownership (and therefore will be recognized as the registered owner) and the beneficiary will hold the beneficial ownership.

The trustee is required to manage trust property for the benefit of the beneficiaries pursuant to the terms of the trust.

Belgium

Belgium

Belgian civil law does not recognize the concept of trust as such.

Bosnia-Herzegovina

Bosnia-Herzegovina

In Bosnia and Herzegovina, legal ownership means ownership of land and buildings as registered in the land books at the local land registry of the relevant municipal court. Beneficial ownership as such is not recognised.

Canada

Canada

Canadian law recognizes the concept of a division between legal ownership and beneficial ownership. A division between legal ownership and beneficial ownership will occur where a trust is formed so that a trustee owns (or will own) the property on behalf of one or more beneficiaries. The trustee will hold the legal ownership (and therefore will be recognized as the registered owner) and the beneficiaries will hold the beneficial ownership.

The trustee is required to manage trust property for the benefit of the beneficiaries pursuant to the terms of the trust.

China

China

Yes. The PRC Trust Law of 2001 allows for the creation of trusts.

Croatia

Croatia

The concept of a trust or a split between legal and beneficial ownership is not recognised in Croatia.

Czech Republic

Czech Republic

The concept of a trust or beneficial ownership is now expressly recognized by the Civil Code, effective from 1 January 2014. According to the relevant provisions, for legal purposes, the trustee acts as a representative of the owner.

Denmark

Denmark

The concept of a trust is not recognised in Danish law.

France

France

The concept of trust is not known in France and it is not possible to create a trust under French law. However, French law provides for a concept which aims at being similar to a trust known as “fiducie”. The “fiducie” is applicable in the following two situations:

  • It can be used as a security to guarantee the performance of an obligation; namely the “fiducie-sûreté”.
  • It can be used to assign the management of goods or assets to a trusted third party; namely the “fiducie-gestion”.

This mechanism is not widely used as there are still certain grey areas regarding its implementation.

Case law on the recognition of trusts established under foreign law is scarce and it is generally acknowledged that the concept of a trust is unknown under French law.

The Reform has an impact on the fiducie-sûreté such as admission of the guarantee of a future obligation and softening of the rules of creation and enforcement of the security.

Germany

Germany

No, the common law trust concept is unknown in German law. However, certain security interests can be held by a security agent for other lenders under an arrangement known in German law as Treuhand (a contractual fiduciary relationship).

Hong Kong, SAR

Hong Kong, SAR

Yes. The key characteristic of a trust is that it allows legal ownership and beneficial interest to be separated. The trustees become the legal owners of the trust property as far as third parties are concerned and they are legally entitled to contract on behalf of the trust. On the other hand, the beneficiaries can expect the trustees to manage the trust property for their sole benefit. This is well recognised under Hong Kong law.

Hungary

Hungary

A form of trust has been introduced into Hungarian law by Act V of 2013 on the Civil Code and Act XV of 2014. The trust is a relatively new concept in Hungary and no case law or practice has developed yet, in particular for the purpose of real estate finance transactions.

Ireland

Ireland

The key characteristic of a trust is that it allows legal ownership and beneficial interest to be separated. The trustees become the owners of the trust property as far as third parties are concerned, and the beneficiaries can expect the trustees to manage the trust property for their benefit. The trust concept is long established and well recognized under Irish law.

Italy

Italy

The concept of a trust is unrecognised under Italian law, other than in the limited circumstances provided under the Hague Convention on the Law Applicable to Trusts and on their Recognition (which has been ratified by Italy).

Security governed by Italian law needs to be perfected and enforced directly by the relevant creditor (that is, each lender), not a security trustee acting on the lenders' behalves.

A security agent is often used by syndicates, acting as an agent of the other banks (mandatario con rappresentanza), but this does not negate the requirement that all security needs to be granted in favour of each of the syndicate banks.

Japan

Japan

The key characteristic of a trust is that it allows legal ownership and beneficial interest to be separated.  Trustees become the legal owners of the trusted property as far as third parties are concerned and beneficiaries can expect the trustees to manage the trust property for their benefit pursuant to the agreement with the trustee and statutory mandatory provisions.  This is well recognized under Japanese law, and commonly used to enjoy tax benefits, to avoid real estate-related licence requirement, and the like.

Netherlands

Netherlands

In general, the concept of a trust is unknown under Dutch law (although Dutch law recognizes trusts which are validly established according to the laws of a foreign state). However, the concept of economic ownership is recognized under Dutch law. The key characteristic of economic ownership is that it allows legal ownership and beneficial interest to be separated. The legal owner is the owner of the property as far as third parties are concerned; the real property is therefore registered at the Land Registry in the name of the legal owner. By way of a contractual arrangement, the economic ownership may be separated from the legal ownership by granting the economic owner (or beneficiary) various economic rights regarding the property. For example: the right to receive the profits related to the property. Detailed contractual arrangements can be made between the legal owner and the economic owner dealing with all of the rights and obligations relating to the property, including insurance and rental income.

Nigeria

Nigeria

The concept of a trust is recognized under Nigerian Law in relation to investments amongst others. Where a trustee holds, property, such property is held in trust for the benefit of designated beneficiaries. Legal ownership rights is vested on the Trustee while the Beneficiaries retain the beneficial ownership interests in any property. This concept is commonly used with investment structures such as collective schemes and extensively regulated by the stipulated provisions of the law and the Securities and Exchange Commission.

Norway

Norway

Norwegian law does not recognize the principle of a trust or a split between legal and beneficial ownership.

In a structure involving several lenders, a contractual obligation is often used which places an obligation on a security trustee/agent to hold the security on behalf of the lending syndicate. This type of contractual obligation will be recognized and is enforceable. The security may then be granted in favour of the security trustee/agent on behalf of the lenders. This structure may involve a certain amount of risk for the lending syndicate if the agent becomes subject to insolvency proceedings after having received payment from the borrower, but before those funds have been transferred to the relevant lenders. This risk can be mitigated where the agent has a contractual obligation to keep the funds in a separate account, distinct from its own funds.

Poland

Poland

The concept of a trust is not recognized under Polish law. However, there is an institution of pledge administrator and mortgage administrator under register pledge law and mortgage law.

Portugal

Portugal

Trusts, as a property right held by one party for the use of another, are not recognized under Portuguese law. However, there are other methods which can establish a difference between legal ownership and beneficial ownership, including fiduciary agreements (with inherent limitations).

Romania

Romania

The concept of trust or the split between legal ownership and beneficial ownership was introduced by the Civil Code which came into force on 1 October 2011.

A trust may only be created through a notarial deed. While anyone can be a settlor or a beneficiary of a trust, the trustee can only be one of the following:

  • a credit institution;
  • an investment company;
  • a financial investment services company;
  • an insurance company;
  • lawyers; and

In order to be binding on third parties, the trust must be registered in the Romanian National Registry for Movable Security Publicity. If the object of the trust includes immovable property, the corresponding real rights must be registered in the relevant land books. The maximum duration of a trust is 33 years, and when it comes to an end the trust property is transferred to the beneficiary.

Alternative approaches may also be used, such as joint venture agreements where only one of the associates holds the rights of ownership over the real estate, or the mandate without representation, where the agent acts in its own name and account but in the principal’s interest. A mandate without representation is not permitted if it is used for the purpose of avoiding legal imperative obligations.

Slovak Republic

Slovak Republic

Trusts are not a recognised concept under Slovak law.

Spain

Spain

No, the concept of a trust or a split between legal ownership and beneficial ownership is not generally recognized under Spanish law.

Sweden

Sweden

As a general matter, neither the trust concept nor a split between legal ownership and beneficial ownership regarding real estate are recognised under Swedish law. However, the Land Code (Jordabalken) provides for the concept of a site-leasehold right, which is, in a way, akin to a split between legal and beneficial ownership. A site-leasehold right is a right of use for an indefinite period that can be terminated only by the owner of the relevant land. Termination may occur only at the end of certain time periods; the first a period of at least 60 years and the next of at least 40 years. In the commercial context, however, the time periods may be shorter, although still not less than 20 years. A site-leasehold right may be transferred under the provisions in the Land Code dealing with the transfer of real estate.

Property purported to be held on trust will form part of the trustee's assets and the beneficiaries under a trust will be treated as unsecured creditors with respect to their right to the purported trust property, unless they otherwise have a valid and perfected security interest over such property.

Thailand

Thailand

Yes, this concept is recognized in Thailand in the form of a Real Estate Investment Trust (REIT). While an authorized trustee can own the assets which are to be invested in by an authorized REIT manager, only a trust unit holder can receive the profit gained from such investment. The REIT's investment and business must be focused on real estate only. The REIT, trustee and REIT manager must be authorized by the Office of the Securities and Exchange Commission (SEC) before the REIT can be set up.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

It is unlikely that an onshore UAE court would recognise the concept of a trust (as it exists in common law jurisdictions) given that no such concept exists in the UAE. Instead, if a split between legal and beneficial ownership is sought, then the closest possible legal construct to implement would be an agency arrangement which would see an agent conduct certain functions on behalf of a principal or principals. Such agency arrangements are common in the UAE in the context of security sharing, in that when a transaction involves a number of financiers who are seeking to share common security, it is market practice for a security agent to be appointed to hold that security on behalf of the financiers (as opposed to a security trustee, as would be the case in a number of common law jurisdictions).

United Arab Emirates - Dubai

United Arab Emirates - Dubai

It is unlikely that an onshore UAE court would recognise the concept of a trust (as it exists in common law jurisdictions) given that no such concept exists in the UAE. Instead, if a split between legal and beneficial ownership is sought, then the closest possible legal construct to implement would be an agency arrangement which would see an agent conduct certain functions on behalf of a principal or principals. Such agency arrangements are common in the UAE in the context of security sharing, in that when a transaction involves a number of financiers who are seeking to share common security, it is market practice for a security agent to be appointed to hold that security on behalf of the financiers (as opposed to a security trustee, as would be the case in a number of common law jurisdictions).

UK - England and Wales UK - England and Wales

UK - England and Wales

The key characteristic of a trust is that it allows legal ownership and beneficial interest to be separated. The trustees become the owners of the trust property as far as third parties are concerned, and the beneficiaries can expect the trustees to manage the trust property for their benefit. This is well recognized under English law.

UK - Scotland

UK - Scotland

The concept of a bare trust is not recognized in Scotland but trusts for specific purposes are recognized. However, there is no recognition of the split between a legal and beneficial owner. Trustees are legal owners and the beneficiaries in terms of a trust do not have a right of ownership in the real estate. The beneficiaries only become legally entitled to the real estate once the trust is dissolved or wound up and the real estate assets are conveyed to the beneficiaries. However, throughout the duration of the trust the beneficiaries will normally be entitled to the income from the real estate (depending on the terms of the trust).

Ukraine

Ukraine

For a long time, Ukraine as a civil law jurisdiction did not recognize trust structures. In September 2019, the Ukrainian Parliament adopted amendments to the Civil Code of Ukraine introducing the concept of trust ownership as a new security instrument. Thus, the debtor's obligations under the loan agreement may be secured by transfer of the property owned by the debtor or a third party to trust ownership of the creditor (being a trustee). Once trust ownership has been registered with the State Register of Property Rights over Immovable Property, the legal title to the trust property is transferred to a trustee. However, a trustee is not allowed to alienate such property, except for the enforcement purposes.

Ukrainian law envisages that prior to granting a loan secured by the transfer of immovable property to a trust ownership, the creditor is obliged to offer the debtor the opportunity to secure these obligations in another way.

United States

United States

The laws of each state within the United States generally recognize the concept of fiduciary ownership, whereby legal ownership and beneficial interest are separated. The trustee (fiduciary owner) becomes the owner of the property as far as third parties are concerned, and the beneficiary can expect the trustee to manage the trust property for the benefit of the beneficiary.

Zimbabwe

Zimbabwe

Legal ownership and beneficial ownership are separated. Trustees are only recognized as owners in special circumstances, such as the instance of insolvency. Section 19 of The Insolvency Act [Chapter 6:07] states that trustees only take control of the property for the benefit of the beneficiaries. Hence, they are mandated to provide and account to the Master of the High Court in respect of the property.