Real estate finance law in Belgium

Yes.

Yes.

2.1 The distinction between mortgages on land and buildings on the land?

None.

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

No.

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes. A second ranking mortgage is established before a Belgian Notary and must be registered at the Mortgage Registrar (“Bureau de Sécurité Juridique/ Kantoor Rechtszekerheid”).

A second ranking mortgage ranks below the first ranking mortgage as a matter of law. If the second ranking mortgagee wishes to take enforcement action, it can do so but the first ranking mortgagee has a primary right to sell the secured real estate. The first ranking mortgagee is entitled as a matter of law to receive the net proceeds of enforcement to apply to the sums owed to it, whether enforcement is carried out by that mortgagee or not. Priority deeds are not required, but several mortgagees may agree that they will share pari passu in the enforcement proceeds or a mortgagee may transfer its higher rank to another mortgagee with a lower rank.

2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

Yes. A mortgagee can enforce the mortgage even though the property is no longer owned by the original mortgagor. In practice, a mortgage deed includes an agreement not to sell (or grant rights in or to) the property except with the prior written approval of the lender.

2.5 Are there any preferred creditors (other than prior ranking mortgage holders)?

Numerous legal liens and privileges can attach to all (or part) of a debtor’s assets. However, with respect to mortgages, judicial costs relating enforcement proceedings are likely to be the only claims to benefit from a lien or privilege.

2.6 Can “all monies” mortgages be taken?

Yes. However the maximum amount of the mortgage will need to be specified.

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes. A receivables pledge of rents can be taken which would be enforceable against the relevant tenant once that tenant receives notification of the pledge. However, towards third-parties, the pledge is effective as soon as the pledge agreement is entered into between the pledgor and the pledgee. Keeping the pledge silent toward the tenants of the pledgor is neutral from this point of view.

2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

Yes. Security is taken over bank accounts by a receivables/bank account pledge.

It is usual for lenders to contractually restrict the borrower’s rights to withdraw funds from the borrower’s bank accounts. Typically, the receivables pledge agreement allows the borrower to freely operate its accounts until default occurs. After default, amounts credited to those accounts are to be paid to the lender and cannot be withdrawn without lender consent.

3.1 Consequences of failure to register?

Security is not enforceable against third parties.

3.2 Formalities for execution of security and costs?

Mortgages must be (i) established before a Belgian Notary (by way of a notarial deed) and (ii) registered at the relevant local Mortgage Registrar (becoming effective on registration). A mortgage is valid for 30 years from the date of registration but it can be renewed.

Registration duties 
1% of the secured obligations.

Mortgage duties 
0.3% of the secured obligations.

Mortgage Registrar’s fees 
The mortgage registrar's fees constitute a fixed amount paid to the State for carrying out mortgage formalities and for issuing duplicates and certificates. The fee amount varies based on the mortgage value, being 230 EUR for values under 300,000 EUR and 985 EUR for values above 300,000 EUR.

Notary fees 
250 EUR plus a proportional fee ranging from 0.0460% to 0.7500% of the secured obligations.

Administrative costs 
Between 800 EUR and 1,100 EUR depending on the Notary.

All security constituted by attending a Notary requires the lender to be represented. Usually the lender grants local Belgian lawyers a power of attorney (which is not submitted to any specific formality) to enable the lender to be represented before the Notary.

No. “Parallel debt” arrangements are used instead. Since April 2015, mortgages may be transferred between financial institutions without any formality or costs. This has simplified transfers of loan participation on the secondary market.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

Traditionally, in case of change of lender, the transfer of the mortgage must be notarized and registered in the Mortgage Registry.

This formality (and the related costs) may be avoided if one of the parties to the transfer is a financial institution. However, in this case, in the Mortgage Registry, the lender of record will remain the old lender, resulting in the same keeping a duty to inform third-parties of the identity of the transferee.

The tenant has the right to assign its lease without the landlord's consent unless otherwise provided  in the lease. In practice, however, most leases contain as clause requiring the landlord's consent.

The outgoing tenant remains bound by the terms of the lease unless the landlord agrees to release the outgoing tenant.

A lease of retail premises together with the business assets (“cession du fonds de commerce/overdracht van het handelsfonds”) can be transferred without landlord’s consent.

Lender’s consent on changes of tenants depends on the concrete situation of the asset (e.g. single tenant vs multi-tenant).

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

A foreign jurisdiction can be chosen to settle disputes between lenders and borrowers. Security arrangements are almost always governed by Belgian law and disputes relating the Belgian securities are dealt with by Belgian courts.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgements without review?

No. Belgium is, however, party to the Brussels and Lugano Conventions and subject to the Brussels Regulation (EC44/2001) on recognition and enforcement of judgments in civil and commercial matters, which generally provide for recognition of judgments of most EC partners, except in limited circumstances.The enforcement of arbitral awards will always be subject to a prior review by the Belgian judge.

Belgium is, however, party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) the purpose of which  is to facilitate the recognition and enforcement of foreign arbitral awards .

The enforcement of foreign judgments depends on whether they originate from EU Member States or not :

• Judgments from EU Member States are enforceable without prior review by a Belgian judge  (Brussels I^bis Regulation - 2015).
• Judgments from non-EU Member States are enforceable subject to an  an exequatur procedure in Belgium. However, Belgium has concluded a number of conventions to facilitate the enforcement of foreign judgments (e.g., the Lugano II Convention (2007) or the Hague Convention (2019)).

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

The enforcement of a mortgage results in the sale of the property to a third party. As a rule, the property is sold by a notary by way of a public auction under court supervision. Private sales may be permitted by the court under certain conditions.

As a rule, the declaration of bankruptcy does not prevent the first ranking mortgagee from enforcing the mortgage (save for a brief period when creditors’ claims are ascertained) . The receiver appointed by the commercial court may nonetheless ask the court to suspend the sale of the mortgaged property provided it is in the interest of the bankrupt estate and it is not detrimental to the mortgagee. This suspension may however not last for more than one year as from the opening of the bankruptcy. When the sale of the property has occurred, the receiver is obliged to pay the net proceeds to the first ranking mortgagee after paying the holders of liens/privileges (see A2.5) and his own costs.

6.4 Is the lender responsible for maintenance and insurance of the real estate after default until sale?

No. However, a lender may choose to maintain/insure to protect the value of the asset.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

Foreclosure is prohibited. Mortgagees may not gain title to the property. The asset must be sold.

No.

Yes.

Yes, if first ranking pledgee approves, a third party pledge-holder can hold the pledged shares for the account of multiple pledgees. First ranking pledgee tend to be reluctant to approve second ranking pledges.

B3.2 for perfection requirements.

3.1 Consequences of failure to register?

If the pledge is not registered, the security is not enforceable against third parties.

3.2 Formalities for execution of security and costs?

A pledge over registered shares requires appropriate book entries (registration) in the company share register.

The pledge over dematerialised shares is perfected by the booking (registration) of the shares on a special pledge account.

No noteworthy taxes/costs (except legal fees and banking fees in connection with granting a pledge over dematerialised shares).

Generally, no. A special pledge account can be opened in the name of the lender or its nominee for dematerialised shares.

Loans from shareholders can be contractually subordinated.

Shareholder loans are often pledged to the lenders, which facilitates the enforcement of the share pledge.

Our answers apply to standard leases. Specific rules may apply to retailers as tenants.

1.1 Typical lease length?

The lease length is determined by the parties in accordance with their economic needs, subject to the comments below. Usually, a term of 9 years.

1.2 Maximum/minimum lease length if any?

Not applicable, except for retail leases, which have a minimum duration of 9 years.

1.3 Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

Subject as follows, a lease is entered into for a fixed term:

Lease agreements may provide the tenant with a break option, allowing the tenant to terminate the lease before the end of the agreed lease term if it gives the requisite notice;

If, after fixed term expiry, the tenant stays in the premises without objection of the landlord, the lease is renewed on the same terms and conditions (i.e. for the same duration and rent as the original lease) (“reconduction tacite/ stilzwijgende verlenging”);

A lease with no express duration is deemed to be granted on a rolling month-to-month basis and can be terminated by either party giving 1 month’s notice;

It can be agreed that a lease will automatically renew at expiry of the fixed term on the same terms and conditions (i.e. for the same duration and rent as the original lease), unless notice is duly served to terminate.

1.4 Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

If leased premises are destroyed (and can no longer serve the purpose for the premises were leased), the lease is automatically terminated.

If the landlord is in breach of his obligations under the lease, the tenant can seek the termination of the lease before the courts.

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

No.

2.1 Rental income receivable quarterly/monthly in-advance/in-arrears?

No statutory provisions. Generally rent is payable in advance, typically either on a monthly or on a quarterly basis.

2.2 Periodicity of reviews?

No rent reviews are allowed during the lease term, except indexation reviews (see C2.4 and C2.5).

However, for retail leases, either the tenant or the landlord can request a rent review when the rent value is either 15% below or above the market value.

Rent is usually reviewed annually by reference to a specified index (see C2.5).

For retail leases specifically, the review basis is market rent.

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

Yes. The rent can be indexed only once a year in accordance with the health price index (which can increase or maintain the amount of rent payable). Generally, leases provide that the rent will not decrease below the originally agreed rent (even if the index is negative). The earliest such a review can take place is on the first anniversary of the lease.

For retails leases specifically, the judge (with the assistance of an expert if necessary) will determine whether an upwards or downwards adjustment of the rent is justified based on market prices.

3.1 Internal maintenance, decoration and repair?

Small repair and maintenance works connected with the ordinary use of the let premises are borne by the tenant.

3.2 External maintenance, decoration and repair?

The landlord must maintain the let premises in a good state of maintenance during the lease term and carry out all repairs required in that respect (“landlord’s works”). However, leases often provide that the landlord is only responsible for structural repairs and that all other maintenance and repair works are borne by the tenant.

External and internal maintenance, decoration, repair beyond the landlord’s works and maintenance/repair obligations accepted in the lease are the tenant’s responsibility (“tenant works”).

3.3 Structural repairs?

All repair costs which are not tenant works (such as structural repairs) are borne by the landlord.

3.4 Insurance?

There is no statutory obligation to have insurance cover in place. Buildings insurance is frequently taken out by the landlord and the premium is then charged to the tenant under the terms of the lease. Most leases require the tenant to insure its own assets placed in the premises.

Generally, it is a lease condition that each party to the lease obtains a waiver by its insurer of any rights it might have to insurance proceeds paid out by the other party’s insurer.

3.5 VAT?

In Belgium, leases are typically not subject to VAT.

However, exceptions exist under certain conditions that permit the option of applying VAT.

These exceptions include: (i) leases on new buildings or buildings that have been significantly renovated; (ii) leases for durations of less than six months, excluding residential leases and specific non-profit uses; (iii) leases for warehouse or storage spaces.

Choosing to apply VAT enables the recovery of VAT incurred on construction or renovation costs.

3.6 Rates?

21% when applicable.

3.7 Other typical outgoings?

See C3.8.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

Common practice is for the tenant to be obliged to pay (i) rent, (ii) maintenance/insurance/repair costs and (iii) real estate taxes. (ii) and (iii) are charged as service charge.

Landlords tend to include as many items as possible in the service charge.

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

The lease agreements will be applied and interpreted by the courts based on the applicable statutes (e.g., the Civil Code) and the supporting case law on the matter.

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

Under Belgian law, court recognition of appraisals does not strictly require the appraisal to be prepared by a domestically regulated or qualified valuer. However, it is advisable that a property valuation report be prepared by such valuer.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

Yes. Lenders often request such report prior to lending. Furthermore, it is a formal requirement to obtain an Energy Performance Certificate (PEB/EPC) for a building prior to its sale or rental. This certificate must be issued by experts who are officially accredited by the state.

By 2030 at the latest, all buildings in Belgium will be required to have an EPC to ascertain the requisite energy renovations.

These obligations stem from European law, notably the European Directive 2010/31/EU of 19 May 2010, on the energy performance of buildings.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

In principle, a lender holding a mortgage on a property is not liable for breaches of environmental laws.

However, if the lender enforces the mortgage, leading to the property being sold, certain environmental obligations shall apply. Notably, if there is a suspicion of soil contamination on the mortgaged property, the seller/lender is required to conduct a preliminary soil investigation before the sale to ascertain the presence of contamination. Should contamination be confirmed, authorities may request further remediation measures. Consequently, the lender may face various costs associated with these environmental requirements.