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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?
Typically, real estate financing is provided by the local mortgage institutions or by local or foreign banks. There are laws regulating both types of lender.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
Traditional mortgage loans are provided by mortgage institutions and are bond-backed financing on generally favourable terms, in terms of both interest and conditions. The Danish system has existed for more than a century and has proven very stable, albeit complex.
Loans from banks and financial institutions will also generally be secured by the registration of a mortgage against the property in question.
What covenants are typically made in financing agreements?
The traditional mortgage loan is secured by a first priority mortgage being registered on the property without any Loan Market Association (LMA) type covenants, but with a cap of 60% of the property value for commercial properties and 80% of the value for residential properties. No loan-to-value covenant applies for such traditional mortgage loans after the mortgage loan has been granted and the traditional mortgage loan is subject to few covenants (due insurance must be maintained, but no ongoing business information is to be supplied during the term of the loan).
In terms of loans offered by banks and other financial institutions, the covenants will typically be comprehensive LMA-type covenants, including requirements as to:
- provision of certain financial information;
- loan-to-value requirements to be maintained;
- debt-service coverage ratios;
- lease arrangements; and
- compliance requirements (eg, environmental).
Enforcement of security
How are security interests enforced in the event of default?
In addition to mortgages registered in the land register, security interests pertaining to real property include:
- pledge over lease agreements;
- step-in rights in lease agreements;
- mortgages registered on buildings erected on leased land;
- pledge of rental income; and
- pledge of shares in the company owning the real property.
In case of mortgage security interest, ultimately a mortgage holder who has not been duly paid will have to demand that the property is being auctioned off through the intervention of the court system. In case of other security interests, enforcement depends on the type of security. In case of pledge of rental income, the enforcement will be notification to the tenants to the effect that the rent may be paid only to the pledgee’s account.
What is the typical timeframe for the enforcement of security?
In case of mortgage security, provided that the mortgage properly allows for submission directly to the courts, a timeframe of four to six months is normal.
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