A land charge is entered in the land register to secure a personal receivable as a right in rem. As a result of this right, the creditor of the receivable can demand the satisfaction of the receivable from the land.
In property financing, land charges are usually registered as mortgages to secure the creditor’s claim to repayment. Taking into account the requirements for validity such as notarisation entry in the land register, the borrower enters a security for the lender. This gives the lender a right of lien to the immovable property if the borrower fails to meet its debt (property lien).
Property liens are registered in Division III of the land register. In addition to the land charge, property liens also include mortgages and annuity charges. A land charge and a mortgage differ in their connection to the receivable under the loan agreement:1
A mortgage is strictly accessory and therefore only arises when the receivable to be secured has arisen. It also expires automatically on the full repayment of the receivable. By contrast, a land charge is not accessory and thus not dependent on the existence of a receivable. In reality, however, it still usually serves to secure a receivable (so-called land charge to secure a debt).2 As a promissory note, a debt instrument on a receivable or similar are fundamentally not required, a land charge is a significantly more flexible security instrument than a mortgage. This is also on account of the fact that the land charge is not limited to a particular receivable, but rather receivables can be substituted or several receivables can be secured. However, the relationship to a respective receivable can also be stipulated by a security agreement. This so-called declaration of purpose of the security can be constantly adapted to the respective requirements.3
It is contractually agreed between the land owner and the land charge holder and establishes, among other things, for which receivables and under which conditions the land charge can be availed. All these reasons have led to the land charge usually being preferred as a hedging instrument in the financing of property. Nevertheless, this is commonly referred to as a mortgage loan in practice, even though it is actually a land charge.
Another advantage is that the land charge can remain in place after the secured receivable has been repaid. This avoids an expensive process in the event of renewed borrowing.4