What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?
The most common form of security over real estate is the mortgage. Due to the existing restrictions to foreign ownership of real estate, foreign investors are granted surface rights over real estate. Security over these rights can be created but it requires the prior authorization of the grantor. The creation of security over immovable assets, related rights or movable assets subject to registration is created through mortgage. The mortgage must be executed by notarial deed and is subject to registration.
The most common form of security over receivables is a pledge of credits, which is created by a written agreement. The pledge of receivables is subject to the notification of the respective debtor. Thus, it is also possible for security to be granted over the rental income from a property. This usually takes the form of an assignment whereby the tenants are directed to pay the rental income to the lender so that the rental income does not pass through the hands of the borrower.
The type of securities to be entered into by an investor will mainly depend on their degree of sophistication. Generally speaking, mortgages are the most common form of security to acquire or develop real estate. But Bond issuance is also available on the real estate market and used by sophisticated developers.
Typically, a borrower acquiring or developing real estate will provide a mortgage over land in favour of the lender. A mortgage entitles the lender to take possession of the asset and dispose of it, with priority over unsecured creditors.
A corporate borrower may also provide a security interest in all (or some) of its current and future assets by way of a general security agreement. A general security agreement will include a security interest in circulating assets. Circulating assets form a class of assets which in the course of the borrower’s business changes from time to time and which may be disposed of without consent of the lender.
Guarantees and indemnities from third parties are also often provided to lenders and these may be supported by a mortgage or a general security agreement in favour of the lender.
Security can also be granted over assets such as a lease.
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), as a guarantee 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 registration office and entered in the mortgage register in order to be valid 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/entry in the register (the mortgage first registered/entered will rank first). A mortgage is valid for 30 years as from registration and is renewable.
One of the other benefits 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 only possibility to remove the mortgage is after repayment of the debt to the mortgagee in accordance with the terms of the mortgage deed or with the agreement of the creditor. Therefore, the mortgagor must be the actual owner of the real estate in order to be able to obtain a mortgage.
The total secured amount must be specified in the mortgage deed.
Parties can agree, in order to reduce the registration duties and fees entailed by a mortgage, to have a mortgage mandate, which is not an in rem security directly over the assets but only a means to acquire a mortgage.
This is an agreement between a borrower and representatives of the lender whereby those representatives are granted the power to secure the lender’s claim at a future date by establishing a mortgage against the property of the borrower, for the amount agreed in the mandate.
The mortgage mandate is executed in front of a notary public.
However, as this does not constitute a security over the assets, if the debtor grants a mortgage on the same property to another creditor before the conversion of the mandate, the mortgage first registered will rank first.
Also, it must be noted that any conversion of the mandate within the ‘suspect’ period (which can be fixed by the commercial court up to six months prior to bankruptcy) can be voided by the bankruptcy court.
In Belgium, it is customary for lenders to take a mortgage for a portion of the secured obligations, and a mortgage mandate for the remainder, in order to (i) secure ranking for such portion of the debt and raise awareness of other potential creditors as to the existence of outstanding secured financing but (ii) to reduce the costs that would be entailed by registering a mortgage for the full amount of the secured obligations.
A pledge over receivables is effected by private agreement. Under Belgian law, a pledge over receivables is valid between parties, provided that the pledgee is entitled to notify the debtor of the pledged receivables of the pledge, and enforceable against third parties (other than the debtor of the pledged receivables) as from the date of its conclusion. However, in order to be valid against the debtors of the receivables, the debtors must be notified of the pledge, 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.
As a pledge over a bank account is viewed by a majority of legal scholars as a pledge over a receivable (a claim on the bank for the funds standing to the credit of the account), it can be included in the pledge over receivables or drafted separately. The same principles as set out above apply. 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. The pledge agreement will not in itself transfer title to the shares to the lender but will assign certain shareholders’ interest in them on such terms that the lender (pledgee) is able to dispose of them and apply the proceeds towards the debt owed.
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. The company can provide share certificates reflecting the record in the share register and mentioning that the shares are pledged.
Movable assets can be pledged by way of registration in the National Pledge Register. This register pledge means that, all moveable assets, tangible and intangible, in whole or in part, can be pledged by private agreement. 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 National Pledge Register. This registration will be valid for a renewable period of 10 years. A pledge over tangible moveable assets will also be valid against third parties simply by the pledgee taking possession of the relevant assets.
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.
The most common forms of security granted are a mortgage and/or a pledge. The Rights in Rem Act (Official Gazette of FBiH no. 66/13, 100/13 and 32/19 – The Decision of the Constitutional Court) (Rights in Rem Act), which was passed on 5 September 2013 and has been in force since 9 March 2014, provides for a land debt as a type of security. A land debt is a limited property right burdening the real estate with the effect that a certain amount of money should be paid to the holder of the right from the value of the real estate and the owner of the real estate from time to time is obliged to tolerate it. However, this type of security is not yet common in practice.
Real estate acquired by the investor to develop a real estate project is usually granted as security to the lender. The security granted would usually consist of mortgage security over the real estate or, more often, a fiduciary sale (alienação fiduciária), meaning that the lender will be the owner of the property until due acquittal of the loan, the latter being a more effective security.
The mortgage is submitted to a maximum limitation period of 30 years, as of the date of the legal transaction. Its term starts on the date of the contract, not on the date of the registration of the real guarantee. The fiduciary sale has no maximum limitation period.
Mortgage and fiduciary sale guarantee repayment of capital and interest.
>All rights in rem, including mortgages and the fiduciary sales, are enforceable against third parties only after they’ve been registered at the real estate registry office, where the real property is registered by means of a real estate register.
In all common law provinces, a borrower acquiring or developing real estate will provide a mortgage over land in favour of the lender. A mortgage entitles the lender to take possession of the asset and dispose of it, with priority over unsecured creditors.
Quebec is a civil law jurisdiction which also contemplates taking security by way of a hypothec over real (or immovable) and personal (or movable) property.
A corporate borrower may also provide a security interest in all (or some) of its current and future assets by way of a general security agreement or hypothec.
Guarantees and indemnities from third parties are also often provided to lenders and these may be supported by a mortgage, general security agreement or hypothec in favour of the lender.
Real estate developments are generally secured by mortgages over land and buildings (or just land where there are no buildings). The mortgaged property remains in the mortgagor's possession. The mortgagee enjoys priority over the proceeds from the mortgaged property in the event of the mortgagor's insolvency, but ownership of the mortgaged property will not be transferred to the mortgagee.
Mortgages over land and/or buildings are effective upon registration of the mortgage; other mortgages are effective when the mortgage agreements come into force, but subject to perfection by registration. Registration is regulated by a range of government bodies.
The contractor is entitled to a lien against a building under construction.
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The most common form of security over real estate is a mortgage. A 'fiduciary transfer' of ownership may also be granted as security over real estate.
The most common securities created in order to secure real estate financing are the following:
In addition, it is common to enter into agreements in the form of notarial deeds consenting to the direct enforceability of the relevant borrower's payment obligations.
The types of security typically entered into by an investor are mortgages and owner’s mortgages. These securities can be combined and the security package often also include a personal guarantee.
The financing of acquisition and development projects is generally secured by security created over the assets and shares of the borrower; lenders generally accept non-recourse financing for the acquisition of commercial real estate assets, whereas investor and/or bank guarantees will usually be required in addition to the standard security package for development projects.
Typically, the lenders will require security that allows them to directly or indirectly recover the financed asset.
The most common forms of security over real estate are:
Under French law, pursuant to article 2409 of the French Civil Code, a mortgage must be notarized (using a notarial deed) that is, executed in front of a French public notary. The debtor’s consent to the mortgage needs to be given in the notarial deed either directly by the debtor or by its attorney-in-fact on its behalf, pursuant to a power of attorney granted for the purpose of such deed. The beneficiary’s (ie the lender’s) consent to the mortgage may be expressed by an agent of the lender, under a power of attorney expressly granted by the lender to its attorney-in-fact. The mortgage deed must state the obligation secured and the amount of the secured debt.
In order to be completed, a mortgage requires:
Obtaining the mortgage extract for the relevant asset usually takes three weeks (sometimes more, depending on the location of the property).
A mortgage will guarantee the repayment of the principal amount secured, payment of the interest at the contractual rate and additional expenses, usually valued at up to a maximum 20% of the amount secured.
A mortgage must be registered with the land publicity registry. There is no time limit for registering a mortgage, but in the absence of registration the mortgage will not be enforceable against third parties. In addition, if the borrower is subject to bankruptcy proceedings prior to registration, it will then be impossible to implement the required formalities with full effect in the proceedings. Mortgages rank according to their date and time of registration. As a result, a mortgage created in February but registered in May will rank behind a mortgage created in March but registered in April.
A lender's legal mortgage can only secure liabilities incurred in connection with the financing of the acquisition price of a property (excluding any other costs relating thereto). This means that, if a loan agreement is entered into to finance the purchase of land and the carrying out of construction works, only the financing relating to the purchase of the land may be secured by the lender's legal mortgage. In such a case (purchase of property and construction works), a lender's legal mortgage will be granted for the amount of the loan corresponding to the purchase price and a contractual mortgage will be granted for that part of the loan relating to construction works.
A lender's legal mortgage, like a mortgage, must be made by a notarial deed, but, contrary to a contractual mortgage, the loan secured by lender's legal mortgage must also be made by a notarial deed whereas contractual mortgage may validly secure a loan made under a private deed (it being specified that in such case the lender would not benefit from enforceable title allowing it to enforce such mortgage within a prior court judgement declaring its receivable due and payable). The deed of sale, also made by a notarial instrument, will provide that payment of the price of the property was effected in whole or in part with the funds lent.
Like a contractual mortgage, this security must be registered with the land publicity registry for enforceability against third-parties purpose and it ranks according to its date and time of registration. However, article 2418 of the French Civil Code provides for specific ranking rules to govern the case where several mortgages of different kind (legal, judicial and/or contractual) are registered on the same date:
The registration of a lender's legal mortgage is less costly than a mortgage registration, since this security is exempt from the land publicity tax, which can represent a significant cost saving when the amount secured is significant.
The typical security package in a German real estate financing includes the following:
The most common forms of security over real estate are:
A legal mortgage and an equitable mortgage are fixed charges and both create a similar type of security. The mortgagor is allowed to remain in possession of the asset though the ownership right passes to the mortgagee. In addition, the mortgagor retains an 'equity of redemption' which is a right to have the asset transferred back to it upon repayment. If there is a default in making mortgage payments, both legal and equitable mortgages entitle the mortgagee to take possession of the asset and dispose of it with priority over unsecured creditors.
Most borrowing is secured by a legal mortgage. The difference between a legal mortgage and an equitable mortgage lies largely in the extent to which the mortgage is perfected by registration at the Land Registry, and legal and equitable mortgages are treated differently in terms of the rules of priority as against other creditors. A legal mortgage created subsequent to an equitable mortgage has priority if it is acquired without notice of the pre-existing security.
It is also common for security to be granted over the rental income from a property. This usually takes the form of an assignment whereby the tenants are directed to pay the rental income to the lender (usually via a managing agent) so that the rental income does not pass through the hands of the borrower. This assignment can be created by a separate security document but it is more usually contained within the mortgage (or a debenture if one is granted).
A corporate borrower can also create a floating charge. This is a charge over a class of assets which in the course of the borrower's business changes from time to time and which may be disposed of without consent of the lender. This type of charge is sometimes taken with very large and complicated property portfolios where the borrower requires maximum flexibility and the lender is not too concerned over control. While a floating charge allows greater flexibility, it has lower priority than a fixed charge because in the event of insolvency where assets are insufficient to satisfy all claims, the claim of a floating charge holder will be postponed to that of the preferential creditors (eg employees). However, it is more normal for a lender to take both a floating charge and a legal or equitable mortgage.
A fixed charge over property can be granted by anyone, including companies, limited liability partnerships, traditional partnerships and individuals. A floating charge cannot be granted by an individual.
Typical types of security over, or in relation to, real estate include:
An investor who is borrowing to acquire or develop real estate in Ireland will usually be required by the lender to enter into a first ranking fixed security over the real estate asset in question. The form which the security takes is typically a charge.
The beneficiary of the charge, normally a first fixed charge, will obtain the right to enforce its security by taking possession of the real estate and/or appointing a receiver over it and/or managing it and/or disposing of it. The beneficiary of the first fixed charge will have priority over preferential creditors (such as the Revenue Commissioners (the tax authority) and employee claims), floating charge holders and unsecured creditors. A first fixed charge holder will also have priority over second ranking or subsequent fixed charges.
The terms “mortgage” and “charge” are often used interchangeably in relation to security over real estate. In general, references to mortgages and charges are to fixed security over the real estate asset in question. The differing terminology arises from the fact that, historically, there have been two different land registration systems in Ireland, the Registry of Deeds and the Land Registry. Security was created over real estate registered in the Registry of Deeds by way of a mortgage and over real estate registered in the Land Registry by way of a charge.
Legislation introduced on 1 December 2009, means that all security over real estate is created by means of a charge. This legislation facilitated a wide-ranging update to, and reform of, Irish land law generally and it also covered the creation of, and enforcement of, security. Mortgages and/or charges which were created before 1 December 2009 are still subject to the pre-1 December 2009 rules. The Land and Conveyancing Law Reform Act 2013, introduced in July 2013, clarified an error in the 2009 legislation by providing that lenders under pre-1 December 2009 mortgages would have similar (statutory) enforcement powers to lenders under post-1 December 2009 mortgages.
Depending on the nature of the real estate asset in question, the security required by the lender may need to extend beyond a straight charge over the asset in question. It is common for security to be granted over the rental income where the asset in question generates rents and/or insurances in respect of the real estate asset. This usually takes the form of a charge and security assignment whereby the tenants are directed to pay the rental income directly to the lender (often via a management agent) and/or the insurer is directed to pay any insurance proceeds directly to the lender, so that the rental income and/or insurance proceeds do not pass into the hands of the borrower.
A corporate borrower can also create a floating charge. This is a general charge over a class of assets which is not (in the normal course) affixed to a specified asset. A floating charge is usually used where, in the course of the borrower's business, the borrower needs the flexibility to deal with the secured assets from time to time, as it usually allows the borrower to dispose of the assets the subject of the floating charge without the consent of the lender. In relation to real estate, a floating charge can be used with regard to large property portfolios where the borrower requires maximum flexibility and the lender is willing to allow the borrower to manage the portfolio without the need for a specific consent each time an asset is to be disposed of, however, it is more typical for a lender to take a fixed charge when lending against real estate.
A fixed charge over real estate can be granted by anyone, including a corporate entity, a limited liability partnership, a traditional partnership or an individual. A floating charge cannot be granted by an individual.
Italian law formally recognises only specific types of contractual security which grant preferential rights in favour of a creditor over the assets of the grantor. The main kind of security typically granted in the context of a real estate financing is the following:
1. ‘ipoteca’: a mortgage in respect of immovable property (land and buildings) and certain classes of registered movable property (cars, ships, aircrafts). A mortgage must be executed by a written deed before a Notary public and it must be deposited and registered with the competent Land Registry (Conservatoria dei Registri Immobiliari) to be validly created;
2. ’pegno’: a pledge in respect of movable property, receivables or other assets. For example, it is common for the shareholder(s) in a borrower company to grant a pledge over the shares in the financed propco or, for borrowers, to grant a pledge over, inter alia, each bank account held by the borrower itself in relation to the relevant transaction;
3.‘privilegio speciale’ (under Article 46 of the Decree No. 385 of 1 September 1993 of the Republic of Italy (‘Banking Law’): a floating charge over present and future movable properties (not registered in a public registry), belonging to a company, in order to secure debt claims under a medium or long-term financing (with a duration exceeding 18 months) granted by authorised banking entities. The classes of goods which can be subject to a privilegio speciale are:
4. ‘cessione di crediti in garanzia’: an assignment of claims by way of security is not technically a security, but an absolute transfer of title. In the context of a real estate financing transaction, an assignment by way of security typically concerns all rights and receivables arising from insurance policies, occupational leases and/or construction contracts (in the case of real estate development).
Under any such scheme, the debtor(s) of the assignor typically continue to pay to the borrower the amounts due to it until an event of default occurs, and the assignor undertakes to channel any relevant proceeds on a bank account pledged in favour of the lender.
The security mentioned above can be created by separate security documents or within the loan agreement itself (except for the security that must be executed by a written deed before a Notary public). The market standard for structured transactions, however, usually provides for separate documents.
The most common form of security over real estate is mortgage (teitoken), including without limitation, revolving mortgage (ne-teitoken). Mortgage in general is a fixed charge and it entitles the mortgagee to take possession of the asset and dispose of it with priority as against other unsecured creditors. Mortgage is perfected by registration in the land or building registries.
It is sometimes the case that security is granted over the rental income from a property by way of an assignment whereby the tenants are directed to pay the rental income to the lender, if necessary. Or, a lender (bank) sometimes requires the borrower to open its bank account with the lender and to have the tenants pay the rental income to such bank account so that the lender may set off its credits against the borrower, if necessary.
A corporate borrower can also create and perfect with registration, security by way of transfer (jyoto-tampo) over assets other than real estate. This security could be floating security over a class of assets which in the course of the borrower's business changes from time to time and which may be disposed of without consent of the lender. Pledge over the same assets is possible and for pledge over claims, a registration system is available. However, for pledge over movable assets, a registration system is not available. It is sometimes the case that a lender takes both mortgage over real estate and security by way of transfer or pledge over other assets in or around the real estate.
The most common form of security in the financing of real estate is a right of mortgage (hypotheekrecht) over the real estate. Mortgages are established by way of a notarial deed, which must be registered at the Land Registry (a public register, which provides notice and information to third parties of the registered deed). Mortgages secure a specific amount of money (usually the principal amount of the loan plus a surcharge of 40% for interest and costs) and can be divided into two categories: credit mortgages (krediethypotheek) and bank mortgages (bankhypotheek).
Credit mortgages only serve as security for obligations of the obligors under or in connection with a specific loan agreement while bank mortgages secure all amounts owed by the borrower to the lender including, but not limited to, a specific loan agreement and can therefore cover various loans granted (or to be granted) by the same lender or even claims of the lender towards the borrower arising from other grounds.
Receivables can be pledged on a disclosed or undisclosed basis. A disclosed right of pledge (openbaar pandrecht) is notified to the relevant debtor. While a disclosed right of pledge entitles the pledgee to collect the relevant receivables immediately after the creation of the pledge, it is common practice that the pledgor continues to collect the receivables until the pledgee notifies the relevant debtor to the contrary. Such notification usually takes place if an event of default has occurred under the finance agreement.
An undisclosed right of pledge (stil pandrecht) will not be notified to the debtors of the pledgor and is perfected by offering its registration to the competent tax authorities. In order to cover receivables against new debtors, supplemental deeds of pledge need to be registered on a regular basis. An undisclosed right of pledge will only be notified to the relevant debtor upon the occurrence of an event of default. After notification, the relevant debtor will need to pay the relevant receivable to the pledgee directly. A right of pledge can be created by means of a separate deed of pledge, or included in the mortgage deed.
Investors can grant a wide variety of security when they borrow to acquire or develop real estate. They include security such as a mortgage over the relevant land, a general security agreement (which includes a charge over all of the investor’s assets), and assignment by way of security in relation to presales and construction contracts. Larger transactions typically have direct agreements and continuity deeds with contactors to facilitate completion of the project if the investor suffers distress.
Often, key shareholders or beneficial owners will provide a personal guarantee to lenders.
The typical forms of security created over real property in Nigeria are: (i) legal mortgage; (ii) equitable mortgage; and (iii) charge.
It is important to note that the creation of security and the nature of interest created over real property is subject to the consent of the Governor and due registration at the appropriate Land Registry under the relevant provisions of the Land Use Act and registration of the security at the Corporate Affairs Commission. The requirement to obtain Governor’s consent is applicable regardless of the differences between a legal and equitable mortgage.
The most common forms of security over real estate are:
In addition, sometimes assignments will be made of claims arising under hedging arrangements (eg interest exposure), as well as assignments of claims against the seller in a share sale and purchase agreement (including assignments of claims arising under any lease guarantees provided by the seller).
All of the above forms of security entitle the mortgagee to take possession of the asset in question and dispose of it with priority over unsecured creditors.
To be perfected, a mortgage over real estate or lease contracts must be registered in the Norwegian Land Registry. Pledges over receivables must be registered in the Moveable Property Registry and/or by notice to the debtor.
A fixed charge over property can be granted by any party who is registered as owner of the property in the Land Registry, including companies, limited liability partnerships, traditional partnerships and individuals.
In some circumstances, a lender may consider reducing the security package in order to mitigate any adverse tax consequences for the borrower due to limitations on the tax deductibility of interest on loans secured or guaranteed by a shareholder or its affiliates.
The most common types of securities, created or entered into by an investor in relation to financing of acquiring or developing real estate are:
Mortgages are typically established in the form of a notarial deed. However, exceptions are possible if the mortgagee is a Polish bank. It is then subject to registration in the land and mortgage register, which may take several months (with retrospective effect). Typically, the application for the registration of the mortgage is a condition precedent to drawdown. Mortgages are usually established up to 150% of the original loan amount. Mortgages are enforced in judicial enforcement proceedings (sale in public tender), which is a very lengthy procedure – it may take up to two years.
Registered pledges may be established over movables and rights; a floating charge over a collection of movables and rights (an enterprise) is also available. The establishment of a registered pledge is effective once the agreement is signed and registration is completed. This takes up to two months and, as in the case of mortgages, copies of the filed applications constitute conditions precedent. Enforcement methods include the seizure of ownership, sale in public tender, lease of the enterprise and management of the enterprise. As in the case of mortgages, registered pledges are typically established up to 150% of the original loan amount.
The main differences between financial pledges and registered pledges are that financial pledges can only be established for the benefit of financial institutions, they cannot encumber tangible assets or enterprises, and they do not require registration.
Under a security assignment, the property owners typically assign the claims and receivables under lease agreements, bank guarantees, construction agreements, property and asset management agreements and insurance policies. Although neither consent declarations nor notifications to debtors are required for the effectiveness of the assignment (unless the underlying agreement so requires), banks typically require evidence of the delivery of the notices to debtors as a condition for the disbursement of the loan. No enforcement procedure applies as the bank becomes the creditor under the assigned agreements as of the assignment date or other date specified in the security assignment agreement.
This unilateral voluntary statement in the form of a notarial deed can be made by the borrower or any other security provider. The signing of this deed, which is an enforcement title, expedites the potential enforcement process against its provider from a couple of years to a couple of days. As in the case of other types of Polish security, it is typically granted up to 150% of the original loan value. It does not require registration.
When structuring a financing operation for the acquisition or development of real estate investors are required to create security in favour of borrowers to assure performance of the principal obligations.
There are different types of security, tailored in accordance with the specific risks of each project, including without limitation:
The most common forms of security created or entered into by an investor who is borrowing to acquire or develop real estate are:
A mortgage over real estate is created through a mortgage agreement, which must be executed in front of a notary public in order to be valid under Romanian law, and also specify the mortgaged asset, the parties and the cause of the secured obligations. It must also contain reasonably sufficient detail to determine the secured amount. Furthermore, in order to be enforceable against third parties and to rank in priority, mortgages must be registered in the Land Book. If more than one mortgage affects the same asset, their respective priority depends on when the application for registration was made.
Under the Romanian Civil Code, the assets affected by a mortgage agreement over an immovable asset consist not only of the immovable asset itself, but also:
However, if an ancillary movable asset was previously affected by a movable mortgage registered with the Romanian National Registry for Movable Security Publicity, the creditor holding that mortgage has priority. On the other hand, if a movable mortgage is registered on the same day as an immovable mortgage over the same asset, the immovable mortgage has priority.
A legal mortgage right over real property is created in favour of the lender. A legal mortgage is registered with the Land Book on the basis of the deed that mentions the receivable for which the creditor is granted with the legal mortgage.
In order to acquire a movable mortgage over the borrower's movable assets (eg all of its movable assets, receivables, insurance, etc.), a lender needs to enter into a movable mortgage agreement with the relevant borrower.
Unlike an immovable mortgage, a movable mortgage agreement does not need to be notarized in order to be valid, a private deed being sufficient. The mortgage may be granted over any type of movable asset belonging to the debtor in question, including future assets (save for future bank accounts), but the security will only become effective once the debtor has acquired rights over the assets in question, and the secured obligation is created. In order to be effective against third parties, a movable mortgage agreement must be registered in the Romanian National Registry for Movable Security Publicity.
Movable mortgages over business assets may be taken over all movable assets assigned to the activity of the enterprise, either tangible or intangible, . This covers the receivables resulting under any lease of the premises, fixed assets (such as machinery, equipment and tools), intellectual property rights, goodwill and the business name. In order to be enforceable against third parties, movable mortgages over business assets must be registered both with the Romanian National Registry for Movable Security Publicity and with the Commercial Registry.
The most common securities in Slovak real estate financing are the following:
The most common forms of security over real estate are:
A mortgage entitles the mortgagee to sell the property in a public auction with priority over unsecured creditors.
A shareholder in a corporate borrower can also create a pledge of its shares. This also entitles the creditor to sell the shares in a public auction with priority over unsecured creditors.
It is also common for security to be granted over the rent and other possible income from a property. This usually takes the form of a pledge whereby the tenants or the insurance company, in the event of breach of the loan agreement, are directed to make payments to the lender. This assignment is normally created by a separate security document.
For smaller transactions, the security granted would usually consist of mortgage security over the relevant property and a share pledge over the shares in the property owning company. In larger transactions, banks normally require security over all of the borrower's assets and thus, in addition, take pledges over inter alia:
Banks may also take a security assignment of rights under acquisition agreement(s) (if any).
The most typical security created or entered into by an investor borrowing to acquire or develop real estate in Thailand is the real estate mortgage. A mortgage agreement is defined as a contract whereby a person, called the mortgagor, mortgages an immovable property to another person, called the mortgagee, as security for the performance of an obligation, without delivering the property to the mortgagee. It is a kind of encumbrance over land or other real property registered as a security of a debt repayment on the condition that if the mortgagor does not repay the debt, the mortgagee shall be entitled to enforce the mortgage and collect the debt from consideration of a public auction of the land or the real property; provided that the mortgage will be redeemed should the terms of the mortgage have been satisfied or performed. Apart from the real estate mortgage, under the Business Security Act B.E. 2558, a person, as a security provider, who directly operates the real estate business can also assign an immovable property as security for securing his or others' transactions. A personal guarantee is, in addition, a less popular type of security. A number of schemes such as a pledge of shares and either a conditional or unconditional assignment of rights and liabilities belonging to an investor are also available.
In Abu Dhabi, security is taken over real estate and real estate interests (such as usufruct or musataha) by way of mortgage that is registered at the Abu Dhabi Department of Urban Planning and Municipalities (DUPM). In order for the mortgage to be registerable, the mortgage document must be in the form prescribed by the DUPM and must also fully and accurately describe the relevant property. The mortgage application process can be initiated through a "smart" online portal. Upon registration at the DUPM, the DUPM issues an updated title deed reflecting the mortgage (either in writing or in electronic form) and the mortgage becomes enforceable against third parties as a result. Following such registration, the relevant mortgagor cannot sell or otherwise dispose of the property without the consent of the financier.
Only a financier licensed by the UAE Central Bank can have a real estate mortgage registered in its favour. Therefore if a foreign (unlicensed) financier wishes to take security over real property, it is market practice for such financier to appoint a locally licensed security agent to act on its behalf and to be the mortgagee of record for the purposes of any mortgage registration.
Security is also commonly taken over any relevant moveable property associated with the acquisition or development. Federal UAE Law No. 20 of 2016 on the Mortgage of Moveable Assets to Secure a Debt (and its amendments, together the "Pledge Law") governs how security is taken over certain classes of moveable assets such as accounts, trade payables, equipment and tools, goods and raw materials and agricultural products. The Pledge Law provides that security over such moveable property should be by way of written security agreement or mortgage and, contrary to the previous position in the UAE, allows security to be taken over property without demonstrating possession and also allows security to be taken over future property (including bank accounts with fluctuating balances). It is therefore possible to take security over such moveable property which is similar in certain respects to an English law debenture or floating charge (provided that the requirements of the Pledge Law are adhered to).
We note, however, that the Pledge Law does not govern security over all moveable assets, and so care should be taken when securing a particular asset class to ensure that the security is in the correct form. For example, the Pledge Law specifically excludes insurance contracts and proceeds from its operation, meaning that any security taken over insurance contracts and proceeds should follow the traditional form (which is security by way of assignment). Security over ships, aircrafts and vehicles are also subject to different laws and regulations in the UAE.
It is possible to take security over the shares in a company, including limited liability companies, public joint-stock companies and private joint-stock companies. The process for taking security over shares will differ depending on which Emirate or freezone the company in which the shares are held has been established, and so care should be taken to ensure that the proper process is complied with.
It is also common in the UAE to see guarantees (corporate and/or personal) provided in the context of real estate financing. Requirements governing guarantees are set out in the UAE Civil Code (i.e. Federal Law No. 5 of 1985, as amended).
In Dubai, security is taken over real estate and real estate interests (such as usufruct or musataha) by way of mortgage that is registered at the Dubai Land Department (DLD). In order for the mortgage to be registerable, the mortgage document must be in the form prescribed by the DLD and must also fully and accurately describe the relevant property. The mortgage application process can be initiated through a "smart" online portal. Upon registration at the DLD, the DLD issues an updated title deed reflecting the mortgage (either in writing or in electronic form) and the mortgage becomes enforceable against third parties as a result. Following such registration, the relevant mortgagor cannot sell or otherwise dispose of the property without the consent of the financier (as mortgagee).
Only a financier licensed by the UAE Central Bank can have a real estate mortgage registered in its favour. Therefore if a foreign (unlicensed) financier wishes to take security over real property, it is generally-accepted market practice for such financier to appoint a locally licensed security agent to act on its behalf and to be the mortgagee of record for the purposes of any mortgage registration.
Security is also commonly taken over any relevant moveable property associated with the acquisition or development. Federal UAE Law No. 4 of 2020 on Guaranteeing Rights Related to Moveables (and its amendments and regulations, together the ‘Moveables Mortgage Law’) governs how security is taken over certain classes of moveable assets such as accounts, trade payables, equipment and tools, goods and raw materials and agricultural products. The Moveables Mortgage Law provides that security over such moveable property should be by way of written security agreement or mortgage and, contrary to the historical position in the UAE, allows security to be taken over property without demonstrating possession and also allows security to be taken over future property (including bank accounts with fluctuating balances). It is therefore possible to take security over moveable property which is similar in certain respects to an English law 'all assets' debenture (provided that the requirements of the Moveables Mortgage Law are adhered to). In terms of registration, the current applicable security register where such security over movable property is to be registered is held with the Emirates Integrated Registries Company.
We note, however, that the Moveables Mortgage Law does not govern security over all moveable assets, and so care should be taken when securing a particular asset class to ensure that the security is in the correct form. For example, security over ships, aircrafts and vehicles are subject to different laws and regulations in the UAE.
It is possible to take security over the shares in a company, including limited liability companies, public joint-stock companies and private joint-stock companies. The process for taking security over shares will differ depending on which Emirate or freezone the company in which the shares are held has been established, and so care should be taken to ensure that the proper process is complied with.
It is also common in the UAE to see guarantees (corporate and/or personal) provided in the context of real estate financing. Requirements governing guarantees are set out in the UAE Civil Code (i.e. Federal Law No. 5 of 1985, as amended).
The most common forms of security over real estate are:
A legal mortgage and an equitable mortgage are fixed charges and both create a similar type of security. Both entitle the mortgagee to take possession of the asset and dispose of it with priority over unsecured creditors.
Most borrowing is secured by a legal mortgage. The difference between a legal mortgage and an equitable mortgage lies largely in the extent to which the mortgage is perfected by registration at the Land Registry, and legal and equitable mortgages are treated differently in terms of the rules of priority as against other creditors.
It is also common for security to be granted over the rental income from a property. This usually takes the form of an assignment whereby the tenants are directed to pay the rental income to the lender (usually via a managing agent) so that the rental income does not pass through the hands of the borrower. This assignment can be created by a separate security document but it is more usually contained within the mortgage (or a debenture if one is granted).
A corporate borrower can also create a floating charge. This is a charge over a class of assets which in the course of the borrower's business changes from time to time and which may be disposed of without consent of the lender. This type of charge is sometimes taken with very large and complicated property portfolios where the borrower requires maximum flexibility and the lender is not too concerned over control. However, it is more normal for a lender to take both a floating charge and a legal or equitable mortgage.
A fixed charge over property can be granted by anyone, including companies, limited liability partnerships, English limited partnerships acting through their General Partners, traditional partnerships and individuals. A floating charge cannot be granted by an individual or a limited partnership.
The Loan Market Association (LMA), a trade body for the European syndicated loan market, produces two suggested forms of English law security agreements to sit alongside, respectively, the LMA's Real Estate Finance Investment Facility Agreement and the LMA's Real Estate Finance Development Finance Facility Those suggested forms of security agreement contain fixed and floating charges of the types described above and are frequently used to form the basis of transaction security in UK Real Estate Finance Transactions.
The most common forms of security over real estate are:
A standard security is a fixed charge over real estate assets owned by either an individual, a partnership, a trust or a company. In relation to residential properties, standard securities are commonly called mortgages, referring to the terminology of English law. In Scotland it is not possible to create any other form of fixed charge over land other than by way of a standard security. It ranks in preference to unsecured creditors and also to any floating charge. The standard security is a creature of statute; the Conveyancing and Feudal Reform (Scotland) Act 1970.
There are two forms of standard security and both forms (A and B) are laid down by the relevant statute in Scotland:
A Form B security may cover a long-term facility which is governed by a complicated facility letter or indeed several facility letters which specify the rights and obligations of the parties. Similarly, Form B may also be used where the obligations secured are not entirely monetary, for example where the security covers obligations covered in a contract between two parties or an option agreement.
It is also common for security to be granted over the rental income from a property. This usually takes the form of an assignation whereby the tenants are directed to pay the rental income to the lender (usually via a managing agent) so that the rental income does not pass through the hands of the borrower.
A corporate borrower can also create a floating charge. This is a charge over both real estate and moveable assets and as the name implies floats over the secured assets without attaching to any until the charge is crystallized. The procedural requirements for a lender to invoke its power of sale under a standard security mean that a floating charge and the flexibility it offers over the real estate in question is an important part of the security package in Scotland. This type of charge is sometimes taken with very large and complicated property portfolios where the borrower requires maximum flexibility and the lender is not too concerned over control. The lender does not need to grant consent to the disposal of any assets secured just by a floating charge. It is, however, normal for a lender to take both a floating charge and a standard security.
As mentioned above, a standard security over real estate can be granted by anyone, including companies, limited liability partnerships, traditional partnerships and individuals. A floating charge cannot be granted by an individual.
A lender may also seek further comfort in addition to the above, for example:
Generally, Ukrainian law recognizes the following types of security: mortgage of immovable property, pledge of movable property, guarantee, sureties and trust ownership. The most common types of security for the real estate finance are mortgage of existing or future real estate object, pledge of shares of companies holding real estate as well as security over rental income from the property, bank guarantee and suretyships from parent companies. In most cases the security structure includes combination of several types of security.
The most common forms of security over real estate are:
A mortgage is the most common means of effectuating real estate financing. It is a transfer of an interest in real estate to a lender as security for repayment of a loan or other obligation.
The deed of trust is a particular kind of mortgage pursuant to which a borrower transfers an interest in real property to a trustee designated to hold title to the property for the benefit of the lender pending repayment of a loan or other obligation. In a deed of trust scenario, if the borrower defaults on its obligation, the trustee may be compelled to sell the property and pay any outstanding obligations to the lender from the sale proceeds or foreclose and transfer title to the lender.
The mortgage or deed of trust is customarily recorded with the applicable county recorder where the property is located. The main difference between the mortgage and the deed of trust is the manner of enforcement following the borrower’s failure to repay its obligations. The use of a mortgage versus of deed of trust varies by state, as a mortgage is the custom in certain states while a deed of trust is the custom in other states.
Another form of security that is common in real estate development projects is a pledge of ownership interests in the entity that owns the underlying real estate rather than a mortgage or deed of trust on the real estate itself. Such a loan is referred to as a mezzanine loan. If the borrower defaults on its loan obligations, the lender may exercise its rights under pledge of ownership interests and take ownership and control of the entity owning the underlying real estate and thereby take ownership of and control of the real estate itself.
The typical form of security over real estate is a mortgage bond, registered against the real estate or land that the investor is acquiring or borrowing. There is no differentiation between different types of mortgages in Zimbabwe. The other common type of security is a surety bond. This is an agreement among at least three parties where the bond is based on the surety of a third party.
Another less common form of security that can be entered is a cession of shares to be held in trust or the pledge of shares in a company as security.
