Key real estate issues in the due diligence process of M&A transactions raised by the New Property Law

Main changes raised by the New Property Law

In practice, a long-term lease right and a building right are among the most frequently used real rights for the purpose of carrying out important real estate transactions. The New Property Law amends these two rights and consequently modifies certain points of attention in the M&A transactions process, for example:

• The New Property Law enshrines in its article 3.182 the accessory building right (superficie-conséquence/accessoir opstalrecht). This concept means that the holder of a property shall, based on the accessory right to build embodied in its right of use, be the temporary owner of the constructions erected by it until the expiry of the underlying right of use. The accessory building right will be subject to the legal framework applicable to the right from which it derives.
  
• The New Property Law makes several changes to the concept of a long-term lease:
  • the “canon” or royalty is no longer a compulsory element of the long-term lease;
  • the minimum duration of 27 years has been shortened to a minimum duration of 15 years; This allows to terminate the long-term lease before the expiration of the former minimum period of 27 years, which can be very useful for commercial contracts;
  • an obligation for the lessor to compensate the leaseholder for the constructions carried out.

The recent changes should be the subject of attention during due diligence.

With the New Property Law, the M&A transaction process has been made easier on some points and more stringent on other:

• we observe more flexibility on transfer of property titles as transfer restrictions are limited in time and shall have to be justified with legitimate reasons;
• a right of preference, pre-emption right or an option right brings more security and less flexibility. These rights can now be registered to be enforceable towards third parties;
• it is also important to check that the property has proper insurance taken by the holder of the usufruct. He now has an obligation to insure the freehold property for the usual risks and to pay the premiums.