Case 9

Only the rights under the personal servitudes of use and habitation are considered so personal that they cannot be sold or donated.7

The majority of jurisdictions regard a lease as a mere personal right and therefore do not allow its holder to mortgage it8 but only allow the rights under a lease to be pledged or assigned in security of a debt.9 The jurisdictions that allow leases to be registered10 allow leases to be mortgaged without the landlord’s prior consent.11 While some jurisdictions12 accept that a usufruct cannot be mortgaged because it cannot be transferred as such, most jurisdictions13 expressly sanction the mortgage of a usufruct, or at least the rights under a usufruct, with some stipulating that the mortgage will not be terminated if the usufruct is terminated early by a voluntary act of the usufructuary or when the secured claim is discharged.14 While it is generally accepted that the personal servitudes of use and habitation can neither be transferred nor mortgaged owing to their highly personal character,15 South African law, curiously, allows the habitator to mortgage his/ her interest in the property. The holders of a hereditary building lease and a hereditary land lease16 are entitled to mortgage their right. On merger of the titles to the land and the building lease, the Italian Civil Code provides that mortgages over the land and the building right continue to burden each of them separately. Under Austrian law, a mortgage over a building right continues to exist as a mortgage over the land when the building right expires and ownership of the building passes to the landowner. The Austrian and Italian law also subject the compensation for improvements awarded on expiry of the building lease to a mortgage registered over the building lease.

With regard to the creation of rights, the default rule in most jurisdictions is that the tenant is not entitled to sub-let residential17 or

7See e.g. the German, Austrian, Greek, Belgian, Dutch, Portuguese, Italian, Hungarian, Polish and South African reports, Case 9.

8See e.g. the German, Greek, French, Belgian, Italian, Danish and Polish reports, Case 9.

9See the German report which warns that leases are not popular as collateral in practice because of their inefficient enforcement in execution proceedings.

10In Austria it is also possible to mortgage an unregistered lease since it is accepted that all rights may be mortgaged.

11See e.g. the Austrian, Spanish and South African reports, Case 9.

12See the German and Polish reports, Case 9.

13See e.g. the Greek, Austrian, Spanish, French and Portuguese reports, Case 9.

14See e.g. the Austrian, Portuguese, Spanish and Italian reports, Case 9.

15See e.g. the French, Belgian, Dutch, Portuguese, Spanish, Italian, Hungarian and Polish reports, Case 9.

16See the Belgian, Dutch and Polish reports. 17 See the Greek and Polish reports.

488 c o n c l u d i n g r e m a r k s

agricultural property18 without the consent of the landlord.19 Some jurisdictions allow the sub-lease of only part of residential property with the consent of the landlord provided the tenant continues to occupy the other part of the premises.20 If concluded without the consent of the landlord, the tenant may not charge the sub-tenant a disproportionate rent21 and, on termination of the principal lease, the landlord is generally allowed to evict the sub-tenant. In most jurisdictions, the usufructuary is not entitled to create a real right like a right of habitation over his/her interest but he/she may create a personal right like a loan, and in some jurisdictions a lease over his interest.22 On expiry of the usufruct, some jurisdictions compel the nude owner to respect the lease concluded by the usufructuary to a certain extent.23 Italian law allows a usufructuary to create a second usufruct, right of use or right of habitation over his/her interest in the property. As in the case of a sub-tenancy under a lease, the tenant or second usufructuary of a principal usufructuary is dependent on the title of the principal usufructuary. In Spain, Belgium and Italy, the holder of a right of use or habitation cannot create a second usus or right of habitation over his/her interest in the property owing to its highly personal character.24 Interestingly, South African case law allows the usuary to let out spare rooms and the habitator to let out the entire dwelling-house. In France, the habitator is allowed to rent out the house to his/her spouse, civil partner or descendants. The holder of a hereditary building lease is entitled to burden the right with all kinds of separate limited real rights, including a praedial servitude,25 a usufruct and a second hereditary building right. He/she may not, however, grant a hereditary land lease over his building right in tandem with a lease over the building right.26 Interests granted over a hereditary building right will expire on termination of

18See the Italian report.

19See e.g. the German, Austrian, Greek, Portuguese, Spanish, Dutch, Italian, English, South African, Danish and Hungarian reports, Case 9. This is subject to local custom (Greece), special legislation (Portugal) and special circumstances (Poland, Belgium and Denmark).

20See e.g. the Belgian, Dutch and Hungarian reports, Case 9.

21See the Spanish and Portuguese reports, Case 9.

22See e.g. the German, Austrian, Greek, French, Belgian, Portuguese, Spanish and Hungarian reports, Case 9.

23See the Austrian and Belgian reports, Case 9.

24See the German report with regard to the permanent right of habitation (Dauerwohnrecht).

25See the Italian report. 26 See the Portuguese and Spanish reports.

the building right. Similarly, the holder of a hereditary land lease is entitled to create separate real rights over the hereditary lease, such as a usufruct27 and a hereditary building right, but not another hereditary land lease in tandem with a lease over his/her interest in the land.

In jurisdictions which regard the rights under a lease as mere personal rights, a lease cannot be attached by the tenant’s creditors. Claims against the landlord for improvements or repairs or the rental income flowing from a sub-lease may, however, be attached.28 In jurisdictions which regard rights under a lease as real rights or executable receivables,29 a lease can be attached, with the exception of an Austrian residential lease which is essential for the tenant and his/her family. Most jurisdictions regard a usufruct as an attachable economic asset in the usufructuary’s patrimony. However, the purchaser in execution will only acquire a contingent right which will expire on the usufructuary’s death.30 The rights of use and habitation are so inherently intertwined with the person of the holder that they cannot be attached,31 which makes the right of habitation attractive for estate planning purposes. Nevertheless, German law provides that personal servitudes may be attached with the permission of the nude owner, and the South African report suggests that since the habitator is allowed to sub-let the dwelling, his/her interest is also attachable. All the jurisdictions regard hereditary building rights and hereditary land leases32 as valuable limited real rights which are attachable.33

The same considerations applicable to execution proceedings against B apply equally to B’s bankruptcy. A usufruct, hereditary building right and hereditary land lease will be included in B’s insolvency assets. The rules applicable to attachment also apply to B’s insolvency in the case of a lease. Under Belgian, South African and Danish law, the administrator in insolvency is entitled to adopt or terminate the lease. By contrast, a right of use or habitation will generally not be included in the insolvency assets of the holder.

27The prevailing academic view in Belgium is that only a usufruct may be created by the holder.

28See e.g. the German, Greek, Italian, Belgian, Dutch and Danish reports, Case 9.

29See e.g. Spain, England and Poland, Case 9.

30See e.g. the German, Austrian, Greek, Belgian, Dutch, Portuguese, Spanish and Italian reports, Case 9.

31See e.g. the Belgian, Dutch, Portuguese, Spanish and Italian reports, Case 9.

32See the Belgian, Dutch and Polish reports, Case 9.

33See the German, Austrian, Belgian, Dutch, Portuguese, Spanish and Italian reports, Case 9.