Akkermans. Concurrece of Ownership and Limited Property Rights

of the equitable interest of the beneficiary is a relatively new question. The subtraction model seems to reflect more naturally to the conceptions of property lawyers.

There are many possible reasons for this ‘natural’ adherence to the subtraction model. One of these is the closed system of property rights or numerus clausus. If a limited property right can only contain rights or powers taken from the right from which it is derived, usually the right of ownership, the boundaries of ownership limit the content of property rights.

In other words, if the right of ownership comprises the rights to use, enjoy and dispose, a limited property right can only comprise one or a combination of these rights. Property rights that cannot be described in terms of the right from which they are derived present doctrinal difficulties for the system of property law. One example of this is the property right that entitles the holder to acquire another property right. These new property rights are, in contrast to other limited property rights, derived from the more extensive right the holder is about to acquire.

Examples of such rights are German and English options to purchase.97 Moreover, in English law even a contract to convey an estate in land will create a property right for the acquirer.98 The option to purchase and contracts relating to the acquisition of an estate in land are both specifically enforceable in equity and therefore, because they see to the acquisition of a property right and equity regards as done that which ought to be done, a property right in equity comes in to existence.99

As a final example, the German courts have recognized a new anticipatory property right that is created when the German Civil Code awards a special position to the holder of a personal right.100 These rights, known as Anwartschaftsrechte arise, for example, on behalf of a buyer where there is a reservation of ownership title clause.101

Remarkably, the model of creation that is followed in systems that recognize these anticipatory rights is the limitation model, rather than the subtraction model. In limiting the holder of the right of ownership in the exercise of his right, rather than subtracting elements of the right of ownership itself, a larger group of property rights can be created. The effect of this model of creation on the extinction of these

97 In German Dingliches Vorkaufsrecht § 1094 BGB. In English law, see London and South Western Railway v. Gomm (1882) 20 Ch D 562.

98Lysaght v. Edwards (1876) 2 Ch D 499, Walsh v. Lonsdale (1882) 21 Ch D 9.

99Swadling, 2000, 203–384, 231–233.

100The status of Anwartschaftsrechte as property rights in German law is debated, as the rights are not mentioned by the Civil Code and therefore generally outside the numerus clausus of property rights. However, most authors recognise the right at least as a quasi-property right. See i.a. T. Soergel et al., Sachenrecht 1 – §§ 854–984, Band 14, 13th edn (Bürgerliches Gesetzbuch mit Einführungsgesetzund Nebengesetzen. Kohlhammer-Kommentar; Stuttgart: Verlag W. Kohlhammer, 2002), 15; Wolf, 2005, 316.

101It also arises in case the Auflassung, the written agreement on the transfer of an immovable object, is sent for registration in the Grundbuch.

279

rights is also different. Because of their anticipatory nature, these rights are by nature temporary. When the right to which the anticipatory right refers is acquired, the anticipatory right comes to an end. However, the right ends not by merger with the right that is acquired, but because its function has been fulfilled.

These differences are important to take into account in the search for common approaches and principles in European Property Law.102 Common approaches are needed more than ever now that the European Commission is slowly moving into the field of property law, not only regarding cultural objects, but recently regarding Financial Collateral Arrangements and the proposals for a Euro-Mortgage.

The Financial Collateral Arrangements Directive creates a transfer of ownership of shares and money for security purposes and a right of pledge on those same objects. The Directive states rules on the creation, but also on the extinction of these property rights, without having taken into account the different models of creation.

Also in respect to the right of Euro-Mortgage, a pan-European property security right in respect to land, the model of creation is of relevance. From the beginning of proposals for a right of Euro-Mortgage, the German Grundschuld and the Swiss Schuldbrief have been central in the proposals.103

An essential element of the German Grundschuld, as stated above, is the model by which the right is created. Connected to the model of creation is the possibility of concurrence of ownership and Grundschuld in the hands of the same person, without either of right ends. The Grundschuld can therefore be reused to secure another debt. Moreover, as a consequence of the possibility of concurrence, German law also allows an owner to create a right of Grundschuld over his own object on his own behalf and only later convey the right of Grundschuld to another person.

Advocates of the Grundschuld as a model for a Euro-Mortgage have stated that the possibility of reusing the right is an incredible advantage over traditional property security rights over land, that is rights of hypothec, which, due to the principle of accessority, cease to exist when the claim the right of hypothec secures ceases to exist. A right of Grundschuld will be transferred to the creditor for security purposes and will, depending on the transfer, return or have to be returned to the owner. The owner may then re-transfer his right of Grundschuld to another creditor.

Although the latest communication from the European Commission, the White Paper on Mortgage Credit Markets, does not mention the Euro-Mortgage, the proposal does not seem to be completely off the table.104 However, in considering

102On the search for common approaches and principles, see van Erp, 2006.

103See the Segré-report 1966 on the integration of the financial market, to be found at <http://europa.eu.int/comm/economy_f inance/emu_histor y/documentation/chapter1/ 19661130en382develeurocapitm_a.pdf>.

104White Paper on Mortgage Credit Markets COM(2007) 807 final. The Green Paper preceeding the White Paper does mention the possibility of a Euro-Mortgage. See Green Paper Mortgage Credit in the EU COM(2005) 237 final, 13–14.

280

the Euro-Mortgage the model of creation of property rights and the closely connected models of extinction of property rights are not considered. The introduction of a right of Euro-Mortgage that can survive concurrence of this right with the right of ownership will create problems with the system of property law in those legal systems adhering to the subtraction model of creating property rights.

In those legal systems, the return of a property right to the right of ownership will result in extinction of the property right through merger of the powers of the property right and the powers of the right of ownership. Also the ‘relative effect’ of extinction will not help, because this only works in relation to those third parties that have a property right in the property right that ceases to exist through merger with the right of ownership.

5.Rules of the Draft Common Frame of Reference

In February 2009, the Draft Common Frame of Reference was published in its outline edition.105 This was the first edition to deal with aspects of property law.106 The DCFR now deals with rules relating to the transfer of ownership, property security rights and trusts.107

The book on transfer of ownership is called ‘Acquisition and loss of ownership of goods’ and therefore appears to deal with the loss of ownership. However, in the very first Article of the Book, Article VIII.1:101 DCFR, the main instances of loss of ownership are excluded.108 This book does not deal with the situation in which ownership and a limited property right fall into the same hands but only deals with the effect of the right of ownership on two distinct ‘goods’, that is objects, that merge, that is become one economic unit.109 The rules thus focus on the goods, rather than on the rights that are held on these goods.

The ninth book deals with ‘proprietary security in movable assets’. In Article IX.1:101 DCFR, limited property rights are specifically included. Article IX.2:101 DCFR describes the models of creating a property security right. These include the ‘granting’ of a right, but also the retaining of a right while transferring the right of ownership to ‘the security provider’. This possibility is explained in more detail in Article IX.2:213 DCFR. The requirements are that: (a) there is a security contract

105 C. von Bar et al. (eds), Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Outline Edition (München: Sellier European Law Publishers, 2009).

106 von Bar et al., 2009, Intr. 37, 24. The first published edition, the interim outline edition, did not provide rules on these aspects of property law, see C. von Bar et al. (eds), Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Interim Outline Edition (München: Sellier European Law Publishers, 2008), Intr. 2, 4.

107Books VII, IX and X, respectively.

108These include division, mixing (except commingling), real subrogation, occupation and, most importantly, abandonment.

109Article VIII.5:202 DCFR.

281

that entitles the creditor to retain a property security right; and (b) the actual transfer of ownership. To this transfer of ownership the rules of Book VIII apply.

This ability to create a property security right is also known as a transfer of ownership under retention of a property security right and creates doctrinal difficulties. A transfer of ownership requires, according to Articles VIII.2:101 and 2:201(1) and 2:202(1), with an underlying contract, an authority to dispose and a delivery or other agreement on the moment of transfer. Article VIII.2:202(1) further makes clear the transfer system is causal, because an invalid underlying agreement will make the transfer void.

However, once the right of ownership is transferred, the authority to dispose of this right is transferred to the other party. Article IX.2:105 requires authority to grant such rights for the creation of a property security right. Once the ownership of the object is transferred, the transferee can no longer create a property security right. However, the creation of a property security right before the transfer of ownership results in concurrence of the property right, even if it is just for a fraction of a second. The requirement of authority to dispose creates this problem in the doctrine of property law and the only way out is to accept concurrence.110

However, Article IX.6:101(1)(d) DCFR states that a property security right ends when ownership of the object is acquired by the holder of the security right. Although the article does not explain how the security right ends, the phrasing of the Article suggest a subtraction model behind it, so that the property security right ceases to exist upon merger with the powers of the right of ownership.

Finally, Book X deals with trust law. Like in English law, the trust beneficiary holds a right in the trust objects that is distinct from the right of the trustee.111 However, the classification of that right under the rules of the DCFR is unclear. We must assume, therefore, that a right to benefit can be both a personal and a property right, depending on the classification of the right that is held on trust. Such an approach is similar to the English approach to trust law.112 There, the right of the beneficiary comes into existence not as a subtraction, but additionally to the full right held by the trustee.113 However, such an approach would not be in line with the subtraction model that seems to be followed in case of property security rights.

6.Conclusion

It is striking that the position of third parties is taken into account when the extinction of property rights is considered, and at the same time completely opposite models are derived from that same problem. Both the German and the Dutch explanatory

110In Dutch law a similar problem exists, although, following the subtraction model, concurrence cannot exist. See, for example, Art. 3:81(1) BW.

111Article X.1:206 DCFR.

112See Swadling, 2007, 271–273.

113See above, para. 2.4.

282

memoranda of the Civil Codes deal with the unfairness of an extinction of a limited property right for third parties that hold a property right on the limited property right that ceased to exist. In German law this is the deciding factor for allowing concurrence of ownership and limited property rights in respect to land. In Dutch law it is no reason to deviate from the generally accepted subtraction model of creation of property rights and the model of extinction of limited property rights that is strongly connected to that model of creation. However, in order to mitigate the effect of the extinction of limited property rights through merger with the right of ownership, a deviation from the general doctrine of creation and extinction is accepted: a relative effect, generally unknown to Dutch law.

In order to understand concurrence of ownership and limited property rights, the model of creation of property rights must be considered. The acceptance of concurrence is dependant on the model of creation of property rights. Subtraction does not allow for concurrence, because merger will be the immediate result when limited property rights and ownership fall into the same hands. The limitation doctrine, however, allows the property right to continue to exist in a situation of concurrence.

The way in which property rights cease to exist is therefore, to some extent, also dependant on the model of creation of property rights. At least, the doctrinal reasoning behind the way in which property rights can end follows from the model of creation. Doctrinal foundations for concurrence of ownership of property rights in paragraph 889 BGB therefore seem to be found in the limitation model adhered to by German property law. In this system of reasoning it is only doctrinally coherent that the nature of a limited property right is such as to limit the owner in the exercise of his right of ownership rather than taking away parts of the rights of the owner. Concurrence therefore does not mean a return of lost powers, but a temporal concurrence of the full enjoyment of the right of ownership and the limitations on that enjoyment in the same hands.

These issues seem theoretical but are of immediate relevance to the creation of European Property law. The most important example for the moment is the right of Euro-Mortgage. This pan-European property security right will have, if it would be introduced, serious consequences for the doctrinal model of property law in the Member States. Before the work on a Euro-Mortgage moves ahead, the systems of property law in relation to the model of creation and extinction of property rights should be considered.

Moreover, the work on the Common Frame of Reference (CFR) with regard to the law of property continues. At the end of 2009 books explaining the principles and rules on property security rights on movables, transfer of ownership in movables and trusts were published.114 From the rules that have been published it

114 These were published in November 2009 but do not seem to answer the questions raised in this contribution.

283

seems unclear what the underlying approach to creation and extinction of property rights is. We can only hope that these doctrinal issues were taken into account in the drafting process. However, considering the attention concurrence of ownership and property rights and, connected to that, the models of creation and extinction of property rights, have received in both national and comparative scholarship, this does automatically follow. The effects of common rules on property law in this area should therefore, even though they are much awaited, be looked at with great care.

284