Real estate ownershipi Planning
Each region is competent regarding the general legal framework within its territory. Deriving from this general legal framework, zoning plans are the main source of planning rules and regulations and contain binding conditions on the nature of buildings and activities that can be authorised in the concerned area; these plans exist at the level of the municipality, the province and the region. In a nutshell, it can be said that construction, modification, renovation and extension require a building permit, as well as a change of the use of a property (e.g., from office to residential). The first condition to be granted a permit is that the contemplated development complies with the zoning plan. Other conditions apply as well depending on the facts (e.g., results of a public inquiry, environmental impact assessment and fire safety). The operation of certain installations, which may have an adverse impact on the environment or health, or both, also requires an environmental permit, or, when possible and relevant, a combined permit that merges the building and environmental prescriptions and authorisations.ii Environment
The (most relevant) trigger event of soil formalities and sanitation is the 'transfer of a risk land'. Although the concept might differ depending on the region concerned, a transfer or granting of property right and corporate restructuring shall most of the time qualify as a transfer. The activities effectively carried out (with or without an environmental permit) in the premises will determine the qualification of risk land; if an environmental permit has been delivered for a risk activity, it shall lead to the qualification of risk land, but the environmental permit is not the sole or determining criterion (e.g., if a tenant is operating a risk activity without a permit, the owner will nevertheless have to comply with soil formalities in the event of a transfer).
In terms of liability, two situations must be distinguished:
- the compliance with soil formalities lies with the transferor and can be shifted to the transferee where certain conditions are met; and
- the liability for soil pollution and sanitation measures lies with the operator.
Note that in each of the regions a waterfall system is in place, with the operator as first in line in terms of liability but also with a possible recourse against the owner. This is especially true in the event of bankruptcy of the operator. It is therefore highly recommended, for example, when letting a property, to have a clear view on the soil status, a monitoring of the tenant's activity and specific provisions with respect to soil in the lease agreement.iii Tax
Share deals are not subject to transfer tax, stamp duty or VAT, unless the tax administration demonstrates an abuse.
Asset deals are either subject to transfer tax or VAT. When the real estate qualifies as new building for VAT purposes, the transfer of a property right may (when the owner is not a professional developer and opts for a VAT taxable transaction) or must (when the owner is a professional developer) be subject to 21 per cent VAT. A building is deemed new for VAT purposes until 31 December of the second year following its first use or occupancy. Heavy refurbishment allows the qualification as new building either when:
- a drastic modification of essential elements, being the nature, structure or destination, whatever the costs of the works might be, is executed; or
- modifications for which the cost of the works (excluding VAT) equals at least 60 per cent of the market value of the building (excluding ground) at the end of the works being executed.
When VAT does not apply, the purchase of an asset or the granting of a usufruct is subject to 12 per cent (in Flanders) or 12.5 per cent (in Brussels and Wallonia) transfer tax computed on the higher of the agreed price or the market value. Long-term lease rights and rights to build are subject to 2 per cent transfer tax computed on the total of the fees paid to the owner over the full duration of the right increased by the charges contractually borne by the beneficiary.iv Finance and security
The collateral package includes mortgage, pledge of receivables (e.g., rent receivables and insurance receivables) and pledge of bank accounts. The parent company shall usually pledge the shares in the SPV and subordinate any intragroup loans. A few points must be kept in mind:
- a mortgage is subject to 1 per cent transfer tax and 0.3 per cent inscription duty computed on the amount for which it is inscribed. Considering this tax cost, the practice – mostly with Belgian banks but never with Pfandbrief banks – is to inscribe a mortgage for a limited amount and to grant a mortgage mandate for the remainder. A mortgage mandate is not a security but an irrevocable power of attorney to inscribe a mortgage;
- general banking terms and conditions usually include a right of pledge and set-off provisions in favour of the account bank, which could interfere with the pledge of bank accounts in favour of the lender. Therefore, it is common practice to require from the account bank a waiver of these rights and provisions. This should be disclosed and discussed with the account bank ahead of the closing; and
- subordination of intragroup loans is most of the time only partial in the sense that the SPV can still use excess cash to reimburse the intragroup loan.