ANDORRA Law and Practice Contributed by: Albert Hinojosa and Marc Ambrós, Cases Lacambra
ments or hedging agreements. The key point is that such agreements generate liquid, due and payable credit rights in favour of the borrower. The creditor shall notify the counterpart of each pledged agree - ment in an enforcement scenario to receive any payments due or positive-balanced set-off rights deriving from the pledged credit rights. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Lending is subject to the reservation of activity within Andorra, and it can only be carried out by local banks authorised to operate as such by the Andorran Finan - cial Authority ( Autoritat Financera Andorrana – AFA). Therefore, direct lending granted by foreign lenders to finance an acquisition of commercial real estate assets located within Andorra is not allowed, as it would result in a breach of the reservation of activity regime. However, indirect lending (ie, granting financ - ing to a foreign entity that will acquire the real estate asset located in Andorra) would be allowed. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Notary fees are generated concerning the granting and enforcement of security over real estate (usually a mortgage or a pledge) to benefit from a priority over other creditors in an insolvency scenario. No documentary taxes or registration fees are gener - ated in connection with the granting and enforcement of security over real estate assets. 3.5 Legal Requirements Before an Entity Can Give Valid Security Other than the limits on financial assistance outlined in 3.1 Financing Acquisitions of Commercial Real Estate , no legal rules or requirements must be com - plied with for an entity to give valid security over its real estate assets. However, such a decision authoris - ing the creation of valid security over specific asset(s) must be adopted according to the generic legal and statutory requirements that apply to the company. 3.6 Formalities When a Borrower Is in Default No specific formalities or obstacles need to be over - come to enforce a security over real estate against a defaulting borrower, although the granting of secu -
rity over real estate by public deed before a notary is mandatory in the case of creating a mortgage and advisable regarding the granting of pledges. Priority of the lender’s security interest is determined by strict order of creation ( prior tempore potior iure ). In a scenario of borrower default, legal action must be taken by the lender by means of the following. • A declarative procedure to ascertain the existence and quantification of the debt. • Filing a payment demand before the competent courts after such declarative procedure. A notarial enforcement proceeding is also available if the par - ties have previously agreed to this proceeding and its terms and conditions. According to Andorran case law, the enforcement pro - cedure cannot be started unless the defaulted amount corresponds to at least three defaulted instalments. The typical range of time needed to successfully enforce and realise on real property security, if such is security is a mortgage, is from six to 12 months. 3.7 Subordinating Existing Debt to Newly Created Debt As there is no land registry in Andorra, secured debt priority is ranked by means of recording in the Andor - ran Notary Chamber ( Cambra de Notaris del Principat d’Andorra ). The subordination of a secured mortgage to a newly created one requires express agreement between creditors and the raising of such consent into the sta - tus of a public deed before a public notary. The subordination of a pledge to a newly created one requires express agreement by the parties; its docu - mentation through a notarial deed is highly recom - mended. 3.8 Lenders’ Liability Under Environmental Laws Overall, Andorran environmental regulations follow the “polluter pays principle” and are configured as a strict liability system.
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