GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
depending on the market. Equity is often provid - ed downstream in the form of shareholder loans that are expected to be subordinated to the debt financing. If insufficient equity is available in the company’s group, additional funds may need to be obtained from mezzanine lenders. For mez - zanine loans, there will typically be an increased margin, giving the lender a way to participate in the profit and/or the possibility to transform the loan into an equity participation ( “equity kicker” ). Portfolios are often financed by syndicated loans involving different lenders, and secured debt is traded between the lenders. For refinancing, the so-called Pfandbrief (covered bond) is often used. In this case, the loan and granted security must comply with a strict standard. Furthermore, sale-and-leaseback transactions can be seen as a different form of financing, as the former owner/now tenant of the property activates new liquidity. 3.2 Typical Security Created by Commercial Investors The most important security granted over real estate is the land charge ( Grundschuld ) or mort - gage ( Hypothek ). While the more often-used land charge is non-accessory in nature and connect - ed to the secured claim via a security purpose agreement, the mortgage is accessory in nature and attached to the underlying claim. Both are registered as rights in rem in the land register, as encumbrances over the freehold property or a hereditary building right. In addition, the typical security package includes the assignment of rental income, claims under the acquisition agreement, the property man - agement agreement, insurances and contrac - tor agreements. Bank accounts and shares or interest are pledged to the financing bank. The
property/asset manager is expected to conclude a duty of care agreement. If developments are financed additionally, cost overrun and/or finance costs shortfall guaran - tees are commonly granted by the sponsor. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no restrictions on granting security over real estate to foreign lenders and no restric - tions on repayments made to a foreign lender under a security document or loan agreement. However, the payment of interest to foreign lend - ers can be restricted. Under German tax law, banks and other financial services providers must withhold taxes on interest payments made to foreign lenders that do not themselves qualify as a bank or financial services provider. If a foreign lender has a permanent establish - ment in Germany and the loan is attributable to this establishment, the foreign lender is subject to German taxation on the profit resulting from the loan. Depending on the applicable double- taxation treaty, the interest will generally either be tax-exempt in the foreign jurisdiction or the German tax will be credited against the tax liabil - ity arising in this jurisdiction. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Land charges/mortgages as well as share pledg - es require notarisation which triggers mandatory statutory notarial fees. Furthermore, the manda - tory registration of land charges/mortgages on the land register triggers registration fees. If the land charge/mortgage is granted by a foreign entity, the land registry often requests a cost advance before registration.
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