What does land charge for letters mean?

There are two types of land charge in German law. The basic letter charge and the basic book charge. For a land charge by letter, a land charge letter with seal is deposited in an entry via the responsible land registry office. The most important advantage is the particularly flexible handling of assignments (for example, in the event of a necessary or voluntary change of creditor). The letter land charge is a special type of land charge. It is used in an extended form. The letter is handed over to the creditor, who thus acquires all rights to the special land charge for the letter. The transfer of a land charge by letter can take place by means of a written assignment as well as a letter transfer or by means of an oral assignment as well as a letter transfer and a land register entry. The land charge for the letter can also be assigned, for which a written declaration of assignment is submitted. At the moment of handing over a land charge letter, the assignment is legally binding. This land charge is used less frequently than a book land charge because the land charge is 25% higher and a deed can be lost. A rather expensive invalidation of the letter land charge would then be necessary.

The letter land charge – A land register lien

The letter land charge is actually a security right over real property. It is always registered for a property in the land register. In contrast to a land charge, which is only documented by an entry in the land register, the form of the land charge involves the creation of a land charge certificate. This document creation is associated with higher costs.
As a rule, the land charge for letters of credit is deposited as collateral for a loan. In this case, the loan in question is granted by the banks for the respective property, so the land charge in the form of a letter of credit is the direct security which is used to encumber a property. Property service. Especially in the case of long-term and very risky real estate loans as well as construction loans, the land charge is regarded as a common security by the banks. Banks thereby insure themselves against payment defaults.

On a levy of execution on the basis of the land charge for the letter

By depositing the letter land charge, the creditor (e.g. the bank) acquires the right of compulsory execution of the secured property and the real estate on it if the debtor is unable to service payment obligations under his credit agreement. The proceeds from the execution are then used first to service the outstanding debts to the creditor. If the debtor has several liabilities with different creditors that are secured by a land charge, then the claims that were first entered in the land register are serviced first. The sequence of entries in the land register determines which debts are repaid first.
The special feature of such a land charge is the preparation of a land charge letter, which is handed over to the creditor. The land charge certificate contains all relevant information that is also recorded in the land register. The rights to a land charge shall pass to the creditor concerned upon delivery of the land charge certificate. The land charge with a letter can simply be transferred to other creditors by written assignment, this can – if desired – also be notarized. However, a transfer of the letter is not necessarily explicitly recorded in the land register.

Advantages and disadvantages:

The most important advantage of the letter land charge is that in the event of a possible assignment of the land charge to another creditor, no entry in the land register is required. The assignment is not recognisable to third parties and no new land registry costs are incurred. The biggest disadvantage The costs of issuing a land charge letter are higher than those of a simple book land charge. The costs of issuing a land charge letter are estimated to be about 25 percent higher than for a simple book land charge. If a land charge certificate is lost, it is declared null and void by means of a so-called public notice procedure.

Creation and cancellation of the land charge

If a property owner has agreed to encumber the property and the real estate with the land charge to secure the loan, this is referred to as a “land register order”. The application for registration of the land charge in the land register is associated with the order in the land register. A prerequisite for entry in the land register is the notarised or publicly certified authorisation of the owner, which must be available to the land registry office. For the cancellation of a land charge you need the land charge letter and a certified consent to the cancellation by the creditor. The return of the land charge certificate alone does not lead to the cancellation of the land charge.

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