FRANCE Law and Practice Contributed by: Antoine Mercier, Myriam Mejdoubi and Gabriel Dalarun, DLA Piper France LLP
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Assignment of Receivables The security package will also include security interest over cash flow related to the real estate asset (eg, receivables from rent), as well as cash flow resulting from the financing transaction (intragroup loans, hedging, etc), usually in the form of an assignment of receivables by way of security (“Dailly assignment”), a delegation or a pledge over receivables. Possible Changes to French Security Law Note that a reform of the French security law is under discussion containing several proposals which, if implemented, could have an impact on the security package described above (among others, modifications regarding personal guar - antees and mortgage security are being con - sidered, as well as a new civil assignment of receivables by way of security, as an alternative to the Dailly assignment by way of security). 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders In principle, French banking monopoly rules prohibit institutions other than licensed credit institutions or licensed financial institutions from carrying out banking operations in France on a customary basis and for valuable considera - tion. However, there are certain exceptions to this general rule, particularly for European long- term investment funds and certain alternative investment funds. Generally, with the exception of a Dailly assign - ment, there are no restrictions on granting secu - rity to foreign lenders and on payments made to foreign lenders under a security document or loan agreement.
Acquisitions of commercial real estate in France are commonly financed through a combination of equity and quasi-equity, and senior debt in the form of a loan or sometimes bonds, which may be completed with junior (subordinated) debt depending on the risk profile of the transaction, the size of the portfolio and the required loan- to-value ratio. Financial leasing ( crédit-bail ) is another common type of debt financing for commercial real estate, where the creditor acquires the real estate asset from either a third party or the debtor and leases it back to the debtor in return for payment of rent. The debtor has the option to acquire own - ership of the real estate asset at the end of the Lenders generally accept non-recourse financ - ing for the acquisition of commercial real estate assets, whereas investor and/or bank guaran - tees will usually be required in addition to the standard security package for development projects. Contractual Mortgage or Lender’s Lien Typically, the lenders will require security that may take the form of a contractual mortgage (hypothèque ) or a lender’s lien ( privilège de prê- teur de derniers ) over the real estate asset and/ or a pledge over the shares of the entity holding such asset, which also ensures that no change to the shareholding of the borrower will occur during the period of financing without the con - sent of the creditors. term of the financial lease agreement. 3.2 Typical Security Created by Commercial Investors Investor and/or Bank Guarantees
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