Andrei Babiy

Andrei Babiy


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Andrei Babiy

Andrei Babiy


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17 June 2020

Lending Focus - June 2020 – 1 of 6 Insights

Lending against Dutch assets: a safe harbour in turbulent times


At this time of global uncertainty, investors and lenders are hard pressed to find jurisdictions with a stable political and economic environment. The Netherlands is rapidly becoming a popular investment jurisdiction, particularly for those who are looking to diversify their assets from their UK book.

With its strong economy, Northern European location, similar time zone and advanced infrastructure, it has gained much popularity as an area for growth for many UK and global lenders and investors. In 2018, the Dutch market share of foreign direct investment increased by 4%, giving the Netherlands the top spot in the European rankings that year.

COVID-19 has been a challenging experience. However, lenders have been taking a pragmatic view of the real estate market and the attractive, stable and long-term opportunities it affords as a store of value.

This article is designed to provide an overview for those who are looking to lend against assets in the Netherlands. It primarily has a real estate focus, but many of the points highlighted will be equally relevant to any standard corporate or leveraged transaction.

Dutch legal system

Unlike the English common law system, the Netherlands, France and Germany are civil law jurisdictions. The Dutch legal framework is highly regarded by investors and lenders for its transparency and legal certainty.

Syndicated lending

When there are syndicated rather than bilateral lending arrangements, a parallel debt covenant is included in the facility agreement or in the relevant security documents. This creates a direct creditor-debtor relationship between the security-provider and the security agent. The former covenants to pay the latter an amount equal to the amount it owes to the lenders

Dutch security is then granted to the security agent acting in its own name, who is therefore owed a debt to which the security attaches, not as a trustee acting on behalf of the lenders.

The security package

On a typical SPV financing transaction, the types of security available in the Netherlands will resonate with UK real estate financiers. The package generally includes: first-ranking security over any relevant property, shares in the SPV (if a company), security over rental income, insurance receivables, bank account receivables and other receivables in combination with appropriate duty of care agreements with asset and property managers.  

Mortgages over real estate

Notarisation is required for a right of mortgage (hypotheek) over real estate. In terms of procedure, the mortgagor and mortgagee must appear in person before a civil-law notary in the Netherlands to sign the deed of mortgage.

If this presents logistical difficulties, notarial powers of attorney for both parties will need to be drawn up by local notaries in favour of the Dutch notary who is dealing on the parties' behalf.

A Dutch notary will usually require the original notarised and apostilled powers of attorney, although some are more flexible and prepared to complete based on emailed copies and a confirmation that the originals have been sent by courier. It is worth ensuring that the matter is addressed early on in a transaction to ensure this process does not delay completion.

The mortgage deed must state a maximum amount in respect of the secured obligations. The customary approach is to include an amount equivalent to the total principal amount of the loan plus an additional 40% representing interest and costs. There is no correlation between the stated maximum and either notary fees or registration costs.

The deed of mortgage typically includes a pledge of those movable assets which are related to the relevant property.

Finally, the notarial deed must be registered with the Dutch Land Register (Kadaster). This registration is completed by the Dutch notary who executes the mortgage deed.


A Dutch law pledge over shares must also be executed by a Dutch civil notary. Again, if the parties are overseas, this is executed in the Netherlands pursuant to notarised and apostilled powers of attorney.


Dutch lenders will ordinarily require security over the rental income stream, any intercompany indebtedness, bank accounts and insurance receivables.

Security over receivables can be taken by way of two types of pledge, a 'disclosed right of pledge' and an 'undisclosed right of pledge'.

Disclosed right of pledge

A disclosed right of pledge is more common for bank accounts, intercompany receivables, insurance receivables and Share Purchase Agreement receivables in real estate financing structures involving SPVS. It offers:

  • an easier enforcement route
  • does not require registration
  • covers all future receivables, and
  • does not require supplemental pledges.

It is created by way of written deed and notice to the debtor. The deed typically contains the form of notice, a requirement for the pledgor to send the notice and to use its reasonable endeavours to obtain the debtor's countersignature for acknowledgement.

Such countersignature is not required for the validity of the disclosed pledge unless the debtor needs to waive any negative pledge undertaking. However, as in the UK, it is useful for evidential purposes.

Undisclosed right of pledge

An undisclosed right of pledge is typically granted in REF structures where disclosure is not acceptable from a commercial perspective (eg for lease agreements, and as a catch-all for any other receivables).

This form of security is again created by a written deed of pledge. It requires either notarisation or registration with the Dutch tax authorities. Registration is only intended to fix the date of the creation of the pledge (and thus to satisfy the perfection requirement) and does not incur further costs.

An undisclosed pledge creates security over present and future receivables which originate from a legal relationship existing at the time of its creation. It does not create security over future receivables which originate from future legal relationships. For example, a creditor will not have security over a rental stream in circumstances where:

  • it has taken an undisclosed pledge of rental receivables, and
  • the borrower/freeholder subsequently grants a lease to a third party. 

To address this, the pledgor is generally obliged to enter into supplemental deeds of pledge regularly (eg once a quarter or once a year) or each time a new lease agreement is entered into. This obligation is written into the deed of pledge and/or in the facility agreement, with the form of supplemental deed included as a schedule. Alternatively, the pledgor may simply be required to execute a supplemental deed of pledge each time a new lease is entered into.

Bank accounts

Security over a bank account situated in the Netherlands is created by way of a disclosed pledge. 

It is important to note that under the Dutch General Banking Conditions, a bank account may not be pledged without the consent of the bank at which they are held. One must therefore determine early on whether bank consent will be available, if this is critical to the security package. 

It has become increasingly common for Dutch banks to resist consenting to the grant over security over borrower accounts.


Dutch security can only be enforced if there is a payment default. If there is any other type of default (eg a misrepresentation or a breach of undertaking) the secured creditor will first need to accelerate the loan and thus create a payment default in order to be able to enforce. 

An exception applies to financial collateral arrangements and disclosed pledges over receivables. Regarding the latter, a pledgee may at any agreed time exercise its right to collect receivables and apply the proceeds towards satisfaction of the secured obligation.

On enforcement, the secured creditor is the seller of the asset. The sale generally takes place by way of public auction or by private sale with the consent of the district court or the security provider. Ordinarily, no seller representations and warranties will be available, other than in respect of title.

Enforcing mortgages

It is common for the lender's solicitors to include a management clause in the deed of mortgage, enabling the mortgagee to manage the property. This right is generally only exercisable after an event of default that also constitutes a serious breach (ernstig tekortschieten) of borrower's obligations, such as a payment default. Exercise is also subject to court approval. 

If the mortgagee assumes management of the property, the risk of the property will still be with the mortgagor, if the mortgagee acts in the same manner as a reasonable prudent owner. It is market practice for mortgagees to engage third party property managers in these circumstances.

To enforce the right of mortgage, the mortgagee is entitled to have the mortgaged property sold by way of:

  • a public auction in the presence of a notary
  • a court-authorised private sale to a third party (this is usually granted if it is expected that a private sale would generate a higher bid than a public sale)
  • a mortgagor-authorised private sale.

The mortgagee is not permitted to appropriate the property. However, it is worth noting that on enforcement, the mortgagee is allowed to sell the property to itself (albeit through a public auction sale or a court-authorised private sale). 

Enforcing pledges over shares and receivables

A right of pledge can be enforced by:

  • public sale – the pledgee can bid
  • private sale authorised by the competent Dutch court – the pledgee can purchase the asset if so authorised
  • private sale agreed between the pledgor and the pledgee, and 
  • collecting the pledged receivables (based on the authorisation granted in the deed of pledge and typically after an event of default).

Generally, a pledgee cannot enforce by simply appropriating the pledged asset.

Guarantee arrangements

In Group financings, the lender often requires credit support from financially strong group companies other than the borrower, and/or from all borrowers, in order to create a better recourse position.

For example, credit support is often provided by a shareholder or sponsor, or via cross-collateralisation structures on multi-property financings.

In the Netherlands, such credit support can be given by way of:

  • joint and several liability arrangements
  • guarantee
  • surety.

Surety arrangements are hardly ever used in the context of financings and are not covered in this article.

Joint and several liability arrangements

When multiple borrowers are jointly and severally liable, they are co-debtors for the entire debt and the secured creditor is able to claim any part of the debt (when it becomes due) from any of the borrowers. Consequently, any borrower answering for a higher sum than another has a right of recourse against the others. It may subrogate in the security rights of the secured creditor.

The documentation should contain appropriate clauses to ensure that any such recourse or subrogation rights may not be used in competition with the secured creditor or in any manner which may be detrimental to its interest.


When multiple borrowers or a shareholder/sponsor grant a guarantee for the borrower's obligations, the secured creditor can only claim under such guarantee after a payment default under the guaranteed obligations.

The concept of guarantee is not codified in the Dutch Civil Code. It is important to ensure that the guarantee provisions are clearly drafted to avoid re-characterisation as surety or joint and several liability arrangements.

Section 403 statements

Section 403 of Book 2 of the Dutch Civil Code may be useful to lenders where, for example, they have financed a shopping centre on the usual basis that the borrower owner/lessee has secured an anchor tenant. 

If the anchor tenant is itself a subsidiary of a financially robust parent company, lenders may (indirectly) benefit from a guarantee of its rental liabilities to the borrower. This will be available where a parent has already issued an S 403 statement in respect of its subsidiary, or is prepared to do so.

Creditors should be aware that it is always possible for a parent to revoke an S 403 statement. A 'bespoke' guarantee, if available, will be preferable to lenders in circumstances where the anchor tenant is crucial to the deal.

Final thoughts

The Netherlands is an attractive jurisdiction for lenders. Its banking sector is large, sophisticated and robust, with assets equivalent to 315% GDP in 2018. The overall scenario also looks promising for REF lenders – the stimulus of low interest rates pushed property investment to around EUR 20 billion in the same year. REF lenders will be interested to hear that the housing market is also expected to show continued growth and demand overall is continuing to outstrip supply.

A version of this article originally appeared in the May 2020 edition of Butterworths Journal of International Banking and Financial Law.

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