mortgage foreclosure the land has to be sold free of the personal servitude if the proceeds of the sale are insufficient to discharge the claim of the mortgage creditor. The effect of such consent in fact represents a ranking agreement, ranking the personal servitude above the mortgage. This means that the land must always be sold subject to the servitude in a sale in execution.

Spain

The Spanish Civil Code (art. 1571) accepted the Roman maxim emptio tollit locationem (sale breaks hire). The general principle is that the tenant acquires only personal rights under the contract of lease which will not be enforceable on attachment or sale of the property in execution and will form part of the insolvent estate of A unless the lease has been registered in the Land Register.81 Nevertheless, some Spanish decisions, mostly in the field of urban leases (which can by analogy apply to rural leases) seem to lend support to a broader protection of the tenant, based on the principle that his/her possession should be protected as far as possible.82 The generally accepted view therefore is that although B’s lease will be subject to attachment and will form part of A’s insolvent assets, both in the case of attachment and insolvency, B’s possession of the land will still be granted protection irrespective of registration. If A loses ownership of the property on account of a forced sale, B can retain his/her possession of the property for the first five years of the lease. If the term of the lease is fixed at more than five years, the lessee will only be able to enforce the lease on attachment and on insolvency of A for the whole term if the lease was registered prior to the attachment or insolvency (Law on Urban Leases, art. 13.1, para. 2).

The wide protection granted to residential tenants reflects the intention of the Spanish legislator to stimulate the weak residential lease industry in a country where people prefer to purchase rather than to lease residential premises.83

81Dı´ez-Picazo, Fundamentos, vol. 3, p. 347.

82Authors that have written about the new Law on Rural Lease do not deal with this topic, although they consider that art. 22 refers to the transfer of the rural property in a very broad sense (Vattier Fuenzalida, ‘Comment’, pp. 250–1). If the lease contract was concluded before the attachment, it is certain that the acquirer will be bound by the lease until the minimum term (three to five years) expires. It is currently uncertain what the position is if the lease contract was concluded afterwards.

83See the Preamble of the Law on Urban Leases Part I, paras. 7 and 8.

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Consequently, if a house or an apartment subject to an urban lease is attached and sold in execution, B will be entitled to remain in possession until the lease expires. The only exception is where the purchaser in execution is protected by the Law on Hypothecs, art. 34 (Law on Urban Leases, art. 14). The purchaser will, for instance, be protected where the lease has never been registered in the Land Register. If B bona Þde registers the lease after the attachment, the lease will only expire after the lapse of the first five years (Law on Urban Leases, art. 13.1, paras. 1 and 2).84

Property burdened with a usufruct, a right of use or habitation can be attached. Since they are recognised as limited real rights in Spanish law, they will obtain the characteristics of real rights when registered (Law on Hypothecs, art. 13). They are therefore enforceable against the purchaser in a forced sale, leaving the holder (B) in the position to exploit the property until his/her right is extinguished. In addition, the Code of Civil Procedure (CCP), art. 704.2 allows occupiers with ‘sufficient’ title to remain in possession of the property without requiring that their title be registered.85

The Spanish Law on Insolvency (art. 61) regulates B’s position in the case of A’s insolvency.86 It states that contracts entered into by the insolvent before his/her insolvency are not affected by the insolvency (concurso). Thus, in principle, contracts of lease, irrespective of kind, will remain in force until its expiry. Nevertheless, the Law on Insolvency gives either the insolvency administrator or the insolvent (A) the option to apply for the termination of the contract if it can benefit the insolvency proceedings (Law on Insolvency, art. 61.2, para. 2). The competent court has the discretion to award damages to B if it finds that the termination of the lease is in the best interest of the parties.

The insolvency of an owner whose property is burdened with a registered usufruct, use or habitation will not affect the real rights of the holder of these rights (B). This is, however, subject to the Law on Insolvency, art. 71 which provides that dispositions that adversely affect creditors can be set aside (rescindibles) if they were carried out within two years before the declaration of insolvency.

A hereditary building lease (superÞcies) is a real right that requires registration for its constitution (Spanish Land Act 2008, art. 40.2). The land

84Rojo Ajuria, ‘Comment’, pp. 190–1.

85It is the court which will decide if the occupier has sufficient title.

86Ley concursal (Law on Insolvency) of 9 July 2003.

which is burdened with a building lease can be attached and it can also form part of the insolvency assets. In the case of a forced sale, the holder will retain his/her right in respect of the building if the building lease was entered in the Land Register before the land was attached or insolvency declared. The purchaser will thus obtain the land subject to the building lease.

In principle, A’s creditors can attach property subject to a loan for use and this property will form part of A’s assets in insolvency. If there is a forced judicial sale of the property, the court will have to decide whether the borrower (B) has ‘sufficient title’ to be maintained in his/ her possession of the property (CCP, art. 704.2). In a case of insolvency, the Law on Insolvency, art. 61.2 is applicable, as discussed under contracts of lease.

If a prior mortgage is constituted and registered in the Land Register before a residential lease is entered into, the lease will be effective against a purchaser in a forced sale for the first five years only (Law on Urban Leases, art. 13.1),87 after which the contract will expire.88 Decisions of the Supreme and Constitutional Courts require good faith on the part of the tenant.89 This is an indication of the greater protection offered to the residential tenant in that attachment of the prior mortgaged property does not result in the termination of the lease if it is not proved that the landlord and tenant acted in bad faith.90 When the lease contract is entered into and registered before the mortgage is registered in the Land Register, it will continue to be effective for the entire term agreed upon (Law on Urban Leases, art. 13.1, para. 2).91

If A has registered a prior mortgage over the property before a right of usufruct, use or habitation was registered in the Land Register, the position will be governed by CCP, art. 659 (see also CCP, art. 689.2). CCP, art. 659 stipulates that the holder of such a real right is entitled to be informed by

87Before the new Law on Urban Leases was enacted, the Spanish Supreme Court and even the Constitutional Court had already considered some cases where leases were concluded after the mortgage had been created. It was held that the attachment in execution of the property did not terminate the lease (e.g. Spanish Supreme Court Rulings, 23 Feb. 1991, 6 May 1991, 9 May 1996; Constitutional Court Rulings 6/1992, 13 Jan., 21/1995, 24 Jan.).

88Rojo Ajuria, ‘Comment’, pp. 194 ff.; Marı´n Lo´pez, ‘Comment’, p. 104.

89See Supreme Court Rulings, 23 Dec. 1988, 17 Nov. 1989, 14 June 1997; Constitutional Court judicial decree (auto) 309/1994, 14 Nov.

90This will constitute a cause for extinction of the lease not mentioned in the Law on Urban Leases.

91Rojo Ajuria, ‘Comment’, p. 195.

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the Registrar of the foreclosure on the mortgage and the intended sale of the mortgaged property. The holder is given the option to pay the full amount secured by the mortgage in return for retaining his/her right and being subrogated to the position of the mortgage creditor. This means that the equity remaining in the property will act as security for the debt. If the holder does not exercise this option, the fact that his/her right was registered after the mortgage means that he/she will not prevail in a forced sale in insolvency.92 The registration of the right will be cancelled (CCP, art. 692.3 read together with CCP 674.2, para. 2) and the purchaser in the forced sale will receive the property free of any charge.

If A had registered a prior mortgage over the property before a hereditary building lease (superÞcies) was registered, the holder must be informed of an impending forced sale and has the choice to be subrogated on payment of the outstanding debt to the position of the mortgage creditor (CCP, art. 659 read with art. 689). If the holder does not exercise this option, his/her right would be cancelled after the sale since it was created after the mortgage was registered (CCP, art. 674 and 692.3). Note, however, that the Law on Hypothecs (art. 110) provides that constructions erected on the land after the mortgage was registered do not form part of the object of security. Although the hereditary building right (superÞcies) will not, therefore, by virtue of its registration after the mortgage, afford the holder any preference, his/her improvement of the land will entitle him/her to an action for unjustified enrichment against the mortgage creditor and the eventual purchaser of the land.

If a mortgage is created before B’s loan for use, the court, in a forced sale on foreclosure of the mortgage, will again have to decide whether B has ‘sufficient title’ to remain in possession (CCP, art. 661). It is very doubtful that the court will decide that a borrower, who only has a personal right and obtains the use of the property for free, has ‘sufficient title’ to remain in possession.

92A case of a prior mortgage on the property was decided by the Constitutional Court (69/ 1995 of 9 May). The facts were the following: A’s right of usufruct was created on 10 Nov. 1981 but it was not registered until 30 Nov. 1989. After the right was created but before it was registered A created and registered a mortgage (the registration took place on 15 September 1989) over the immovable property burdened by the usufruct. The Constitutional Court held that the right of usufruct, irrespective of the date it was created, was not enforceable against the purchaser of the immovable property in the execution procedure if the usufruct was registered after the mortgage had been registered in the Land Register.