Taking Security On Commercial Properties

Author:Ms Linda Conway
Profession:Dillon Eustace
  1. Introduction

    The purpose of a bank or other lending institution taking

    security over commercial property is to ensure a quicker and

    more assured payout in the event that a borrower company goes

    into receivership, examinership or liquidation.

    In this regard, there are different types of security which

    the lending institution may put in place in order to safeguard

    its investment.

    Before detailing the various methods of taking security, the

    difference between a fixed charge and a floating charge should

    be explained. A fixed charge is security over a particular

    asset. Conversely, a floating charge constitutes a charge over

    all assets of the borrower company as acquired from time to

    time. The company remains free to deal with its assets in the

    ordinary course of business. The charge only becomes a fixed

    charge upon crystallisation. Crystallisation occurs on the

    appointment of a receiver or liquidator and the floating charge

    fixes on all assets in the ownership of the company at that


    A fixed charge gives the best position to a lending

    institution as regards any consequences of

    enforcement1. The main disadvantage with a floating

    charge is that preferential creditors such as the revenue

    commissioners rank in priority to the floating charge, but

    after the fixed charge. Unless the lending institution lodges a

    notice of the fixed or floating charge created by a company

    within 21 days of its creation with the Companies Office, the

    charge will be void against the liquidator or any creditor of

    the company. Accordingly, it is essential to ensure that a

    Companies Registration Office ("CRO") Form C1 is

    completed by the borrowing company on the occasion of

    completing the loan transaction and the Form C1 is filed with

    the CRO as quickly as possible after the completion of the

    transaction and, in any event, within 21 days.

  2. Debenture

    A debenture is a document which contains a covenant by a

    company to pay all sums due or to become due by the company to

    the lending institution and which contains a charge (fixed

    and/or floating in favour of the lending institution).

  3. Mortgage

    A legal mortgage is commonly understood to be a

    'conditional transfer' of a property to a lending

    institution that may become absolute if the mortgagor falls

    into arrears and is unable to make the repayments which it

    covenants to make.

    An equitable mortgage passes only an equitable estate or

    interest, either because the form of transfer or conveyance

    used is an equitable one (i.e...

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