Snapshot: real estate financing in Monaco
Discuss the types of mortgage collateral available to lenders in your jurisdiction. Who are the typical real estate finance providers in your country? Are there any restrictions on who can provide funding?
The usual guarantees granted in the event of the acquisition of an asset are as follows:
- lender privilege;
- personal surety;
- assignment of insurance compensation, guarantee of the holding company with pledge of its shares in the acquiring company;
- subordination of loans granted to the borrower by another company in its group;
- collateral on the borrower’s bank accounts; and
- recourse against the borrower’s shareholders.
Each title has its own enforcement procedure, which may differ from title to title.
Typical providers of real estate finance in Monaco are banks and investment funds. These can provide funding at any time.
Monaco has strict banking monopoly regulations.
Is financing available for land (or principal) leases in your jurisdiction? How does financing differ from financing land operations?
Financing is available to acquire commercial lease rights in Monaco (land leases – emphyteutic – being quite rare).
Such financing differs essentially from land transactions because a mortgage cannot be taken on the lease rights (except for emphyteutic leases), but is generally replaced by a pledge on the right to the lease and often additional personal securities taken on the leasehold. acquiring entity.
No specific lease clause is required to make it fundable, but a bank would rather finance an emphyteutic lease (because of its long duration and the possibility of mortgaging it) or a commercial lease (because of the right to renewal or eviction indemnity). and its market value) than an office lease.
To protect the privilege of the lender, the loan agreement may provide for the assignment of rents as security.
What is the method of constitution and improvement of a security right?
Personal property security can be made by mutual agreement, judgment, or even the law. Most of them (eg mortgages) must be registered to be enforceable.
Are third party real estate appraisals required by lenders for their loan underwriting? Are there government or industry standards for assessments? Do assessors need to have specific qualifications or required government or industry certifications? Who is responsible for commissioning the assessment?
It is common for lenders to ask for appraisals. There is no specific qualification required for an appraiser (except the agreement of the lender).
What would be the ramifications of a lender from another jurisdiction providing a secured loan in your jurisdiction? What is the form of lien documents in your jurisdiction? What other issues would you identify for your clients?
French banking restrictions (banking monopoly) apply to Monaco, in accordance with the treaties between France and Monaco. Banking operations include credit operations. Banking operations cannot be carried out in Monaco by an unauthorized entity, due to the principle of banking monopoly. A lender wishing to carry out a credit transaction in Monaco must be approved accordingly. However, a foreign lender can carry out a credit transaction in its own jurisdiction and under special circumstances, secure the loan with collateral in Monaco.
Loan interest rates
How are interest rates on commercial and high-value real estate loans generally set (with reference to LIBOR, central bank rates, etc.)? What interest rate is legally prohibited in your jurisdiction and what are the consequences if a loan exceeds the legally permitted rate?
Interest rates on high-value home loans are generally set by reference to EURIBOR. According to article 357 of the Monegasque Penal Code, it is forbidden for a lender to set an interest rate higher than 50% of an interest “at market value” determined each year by the Monegasque government, depending on the type of credit granted and the borrower (i.e. an individual or a professional). Said interest rate includes the interest itself and all costs associated with the loan.
For 2021, Sovereign Ordinance 8.457 of January 15, 2021 set the market value interest rates as follows:
- 15.10% per year for overdrafts by individuals;
- 7.85% per year for overdrafts for business needs;
- 3.11% per year for personal loans; and
- 1.59% per year for home loans.
The violation of article 357 of the Monegasque penal code is a criminal offense and the lender, regulated or not, can be condemned to a fine or, in the event of repetition, to imprisonment of one to six months.
Loan default and performance
How are remedies against a defaulting debtor applied in your jurisdiction? Is one share sufficient to realize all types of collateral? What is the foreclosure period and under what circumstances can a lender initiate foreclosure proceedings? Are there any restrictions on the types of legal actions that can be brought by lenders?
The realization of the collateral depends on the type of collateral concerned.
A mortgage (i.e. the most common collateral in real estate transactions) must be made as part of legal proceedings, including an auction followed by an allocation of the sale price among lenders . The auction procedure must begin after formal notice by a bailiff.
Several actions may be necessary to achieve all types of collateral, the timeframe depending on the type of collateral. Even though monetary default is the most common, any major or stipulated default can lead to foreclosure proceedings (usually after a certain period of time has expired following the formal notice).
The legal action in constitution of security can be restricted or even annulled by a judge considering its usefulness to obtain the repayment of the debt, or in the event of bankruptcy of the debtor.
Claims for credit deficit
Do lenders have the right to collect a judgment of money against the borrower or the guarantor for any shortfall between the outstanding loan balance and the amount collected during foreclosure? Are there time limits for a lender requesting an impairment judgment? Are there any limits on the amount or method of calculating the deficit?
Lenders have the right to collect a judgment of money against a borrower or guarantor for any shortfall between the outstanding loan balance and the amount recovered during foreclosure. The period can vary between two and five years.
Protection of guarantees
What steps can a lender take to protect their collateral until they have possession of the asset?
A lender can take interim action on a collateral.
Can the security documents provide for recourse to all of the borrower’s assets? Is recourse generally limited to collateral and does this matter in a bankruptcy or insolvency case? Is personal recourse to guarantors limited to actions such as filing for bankruptcy, sale of the mortgaged or mortgaged property or additional financing encumbering the mortgaged or mortgaged property or the borrower’s property interests?
The remedy is generally limited to the warranty. Bankruptcy results in a stay of remedies, except for lenders seeking to enforce a mortgage.
Cash management and reserves
Is it common to require a cash management system and do lenders usually take reserves? For what purposes are reserves generally needed?
It is not common to require a cash management system.
What other types of credit enhancements are common? What about forms of guarantee?
Other than a commitment to put funds deposited into a pledged bank account, it is not common to have other types of credit enhancements.
What clauses are generally required by the lender in the loan documents?
Covenants in a loan document depend on the nature of the underlying acquisition, but can include (but are not limited to):
- compliance with the applicable statute;
- binding obligations;
- non-conflict with other obligations;
- power and authority;
- no deposit or stamp duty;
- tax deduction;
- no defect;
- no misleading information;
- budgets and financial statements;
- no pending or threatened proceedings;
- no violation of the law;
- taxation and social security;
- security and financial debt:
- good asset title;
- no ownership;
- assignable receivables;
- the ownership, layout and condition of the property;
- acquisition documents;
- environmental issues; and
- Insurance conditions.
What are the typical financial covenants required by lenders?
Standard financial covenants are based on loan-to-value ratios.
Guaranteed movable (personal) property
What are the conditions for constitution and perfection of a security right (personal)? Is a âcontrolâ agreement necessary to perfect a security interest and, if so, what is required?
Securities on movable (personal) property can be established either by mutual agreement, by judgment, or even by law.
Deeds of pledge on intangible fixed assets must be notified to the debtor by bailiff. Commercial pledges lead to the dispossession by the debtor of the pledged property.
Certain types of guarantees (eg on business capital or commercial lease) must be registered and notified to third parties (eg lessors).
Single Purpose Entity (SPE)
Do lenders require every borrower to be an SPE? What are the requirements for creating and maintaining an SPE? Is there a concept of independent administrator of PES and, if so, what is the purpose? If the independent administrator is in place to prevent a bankruptcy or insolvency filing, has the concept been maintained?
It is not necessary that every borrower is an SPE. This can happen depending on the structure of the loan. The basic SPE for a real estate financing acquisition is a real estate company (real estate company), which is quick and easy to set up.