Registered land charge

A registered land charge is a type of land charge in which a specific creditor (e.g., a bank) is named in the land register. It contrasts with a bearer land charge, in which the beneficiary remains anonymous. In German practice, the registered land charge is by far the most common form of security for real estate loans, as it establishes a close link between the creditor and the security interest, thereby creating transparency for all parties involved.

Creation and Registration in the Land Register

The registered land charge is created through notarization and registration in Section III of the land register. The entry specifies the creditor, amount, interest rate, and priority of the land charge. The owner of the property-the so-called grantor-creates the land charge in favor of the bank, which serves as security for a loan.

Important: Unlike a mortgage, the land charge is not accessory. It is therefore not automatically linked to a specific claim. Instead, the connection to the loan claim is established through a separate security agreement. If the loan is repaid, the land charge remains registered in the land register until it is deleted or assigned.

The typical land charge in Germany is a book-entry land charge: No physical land charge certificate is issued; the entry in the land register is sufficient. This simplifies handling and prevents the loss of the certificate.

Book-Entry Land Charge vs. Certificate-Based Land Charge

One variant is the certificate-based land charge: Here, a physical security (the land charge certificate) is issued, which must be handed over to transfer the land charge to a new creditor. The unregistered land charge-the far more common form-can only be assigned through an entry in the land register. For most borrowers, the difference is practically meaningless; it becomes relevant primarily in the context of refinancing and bank takeovers.

Transfer and Assignment of Registered Land Charges

A registered land charge can be transferred to a new creditor by means of a written declaration of assignment (Section 1154 of the German Civil Code). For unregistered land charges-which are the norm today-it is sufficient to enter the assignment in the land register.

This transferability is particularly relevant when banks sell their loan portfolios: mortgage claims and the underlying land charges can then be assigned to investors. For borrowers, this means that a new creditor may appear in the land register without the borrower’s consent. However, the security agreement remains binding-the loan terms cannot be unilaterally altered by such an assignment.

Discharge Following Loan Repayment

Once the loan has been fully repaid, the owner is entitled to a discharge authorization from the bank. With this authorization and the assistance of a notary, the land charge can be discharged from the land register. Alternatively, the land charge can be transferred to the owner (owner’s land charge), which may offer advantages in the event of a future need for refinancing.

Transferring the land charge to the owner makes particular sense if future refinancing is planned: The existing owner’s land charge can then be assigned to the new bank without having to create a new land charge and pay the associated notary and land registry fees.

Practical Tip for Property Owners in Nuremberg and Franconia

When purchasing real estate in Nuremberg and the Franconia metropolitan region, we encounter registered land charges on a daily basis. Buyers should ensure that the purchase agreement specifies whether existing land charges from previous owner financing are to be discharged or assumed. We generally recommend obtaining a discharge authorization from the seller before or, at the latest, at the time of notarization of the purchase agreement, or having a notary confirm that the discharge is to be covered by the purchase price. This protects buyers from unexpected encumbrances in the land registry.

In cases of debt restructuring and the expiration of a fixed-rate period, we recommend retaining the existing registered land charge as an owner’s land charge rather than canceling it-this saves costs when refinancing.

Frequently Asked Questions

What is the difference between a registered land charge and a mortgage?

A mortgage is accessory-it is directly linked to a claim and automatically expires when the claim expires. A registered land charge, on the other hand, continues to exist as an independent right separate from the claim and must be actively discharged.

Can I transfer a registered land charge to a new bank when I refinance?

Yes, that is possible. The bank taking over the loan can assume the existing land charge-this saves on notary fees compared to a new registration. The prerequisite is that the old bank approves the assignment and the land charge corresponds to the new loan amount.

Do I have to have the land charge deleted after the loan is paid off?

Legally, no-but in practice, it is advisable to have it deleted or converted into an owner’s land charge. A registered encumbrance can raise questions during a future sale and requires explanation to prospective buyers.

What does it cost to register a registered land charge?

The costs depend on the amount of the land charge and the Land Registry Fees Act (GNotKG). For a land charge of 300,000 euros, notary fees amount to approximately 600-900 euros, with land registry fees of a similar amount. These costs are generally borne by the buyer or borrower.

How does the land charge affect the sale of the property?

When selling a property with a registered named land charge, the encumbrance is typically redeemed from the purchase price. After full repayment, the financing bank issues a release authorization, which the notary submits to the land registry for cancellation. Alternatively, at the buyer’s request and with the bank’s consent, the land charge may be assumed if the buyer continues the existing loan or arranges their own financing through the same bank. In Nuremberg and the Franconia metropolitan region, such land charge transfers are a common practice in the context of refinancing after the fixed-rate period expires, saving the buyer up to several thousand euros in notary and land registry fees.

Priority Issues and Multiple Encumbrances

In practice, multiple land charges of different priority may be registered on a property-for example, a first-priority land charge for the principal loan and a subordinate land charge for a subordinated loan or supplementary equity financing. The priority determines the order of satisfaction in the event of a foreclosure sale: the first-priority creditor is satisfied first, while the subordinate creditor is satisfied only with the remaining proceeds. In Nuremberg, properties with multiple land charges are not uncommon, particularly for real estate that has been refinanced multiple times or financed with subordinated loans (e.g., from BayernLabo). Buyers should therefore always review a current land registry extract and clarify all registered encumbrances with the seller before the purchase agreement is notarized.

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