Property Finance

Chapter 12Germany¹

1. What are the principal securities lenders will require borrowers to provide?

The term property finance in Germany is understood to mean the financing of the acquisition or development of real property. Typically, the financing is provided by loan, not share capital and is to be repaid principally out of the revenues produced by the property. The loan is made to a single purpose project company owned by the project sponsors and the lender will look only to the SPV for repayment. The SPV will typically be constituted as a limited liability company under German law (Gesellschaft mit beschränkter Haftung – hereinafter “GmbH”). The loan agreement will contain covenants as to the minimum value of the property (e.g. the loan must not exceed 80% of the value of the property during the life of the loan and a ratio of income cover). The transaction documents include the loan agreement (including separate and local syndicates, if any), an intercreditor agreement, security documents, interest hedging agreements, a subordination agreement (e.g. subordinating the repayment of capital injections by the parent company) and, in the case of construction finance, completion and cost overrun guarantees. While the agreements governing the acquisition of the property are typically governed by German law, it has become common for finance documents (with the notable exception of the security agreements) to be subject to the laws of England and Wales.

Security interests typically ...