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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
Typical finance providers are banks, financial institutions (eg, insurers) and funds (including pension funds). Certain regulations restrict the granting of commercial loans, such as the Banking Act for financial institutions or the Capital Investment Code for funds.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
A typical security package for a real estate finance transaction would consist of:
- an immediately enforceable land charge, including an abstract acknowledgement of debt and an accompanying security purpose agreement;
- security assignment of receivables (rent, insurances, claims under existing and future sale agreements, claims under work contracts and claims resulting from shareholder loans);
- pledge over shares, accounts and hedging proceeds; and
- in, for example, the hotel sector, security transfer agreement in relation to fixtures and fittings.
For the purposes of perfection:
- the land charge must be notarised and recorded in the Land Register; and
- the pledges must be notified to the relevant parties.
If shares in a German limited liability company are pledged, the pledge agreement must be notarised as well. Otherwise, in most cases security assignments, security transfers and pledges can be made in writing.
What covenants are typically made in financing agreements?
This is highly transaction specific and depends on a variety of factors such as:
- the type of deal (eg, single property, multi property or development);
- the parties involved (eg, national or international);
- the syndication strategy (eg, national, continental European or international); and
- the investment risk profile.
Hence, documentation ranges from short-form in-house documents to variable data printing documentation and Loan Market Association-based documents.
Enforcement of security
How are security interests enforced in the event of default?
Specific rules apply to the enforcement of land charges. On insolvency, assets not belonging to the insolvent’s estate can be separated and recovered by their owners. The secured creditors (including pledgees and creditors secured by a transfer of title by way of security or assignments by way of security) have a right to preferential satisfaction out of the proceeds of the sale of the security granted. If the insolvency administrator enforces security on moveable assets (other than pledges) and distributes the proceeds to the creditor, it can deduct 4% of the proceeds for the ascertainment of the security and 5% of the proceeds for the enforcement procedure. If the actual costs deviate substantially, these rates would be adjusted.
What is the typical timeframe for the enforcement of security?
Enforcement proceedings in relation to a land charge typically take between six and nine months.
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