De notaris en gelijk oversteken (AN nr. 184) 2024/2:2 Setting the scene

De notaris en gelijk oversteken (AN nr. 184) 2024/2

2 Setting the scene

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Without any further protective measures such as the ones set out in the introduction, a conflict between a buyer and (a) creditor(s), or between two buyers, is usually solved by rules that boil down to a ‘first come, first served’-principle, which in turn follows from the nemo-plus rule. In the context of immovable property, ‘coming first’ must often be understood as ‘registering first’, since registration is often required for the transfer itself or – in consensual transfer systems – third-party effect of the transfer. Although this system shines through its simplicity, problems arise in the context of agreements where a party only wishes to perform if the other party performs too (hereafter also referred to as ‘mutual contracts’), such as a transfer of immovable property in exchange for, e.g., a purchase price. Both parties to such an agreement only want to perform if the other party has already performed or if they know for sure that the other party will perform, which implies that neither of the parties wants to perform first. The most ideal solution to this stalemate is therefore a simultaneous exchange, meaning that – in the context of a sale/purchase – the transfer of immovable property takes place at exactly the same moment as the transfer of the purchase price.1 This result is, however, difficult to achieve (a and b) and has an additional downside (c):

A)

Suppose parties agree to transfer the asset and the purchase price simultaneously at 3 PM on December 1st. This means that parties themselves or, more realistically, a legal practitioner involved in the transfer of land, needs to check at 2.59.59 PM whether both parties still have the power to dispose of the property and the purchase price. This will inevitably give rise to transaction costs.2 One might consider the risk that something happens in the last seconds prior to the transaction as purely theoretical, but Dutch case law proves that in these types of transactions, ‘theoretical’ risks do materialise.3 Furthermore, given the fact that parties to a transfer pay a considerable fee to the legal practitioner involved in addition to the purchase price, the risk that the transaction fails because of something that could have been checked by the legal practitioner, is unacceptable. The last second check – and its costs – are therefore an absolute necessity.

B)

Many jurisdictions have mechanisms that interfere with the power to dispose of an asset with retroactive effect, which brings about that – even though the legal practitioner determines at 2.59.59 PM that both parties still have the power to dispose – in hindsight, one of the parties lost the power to dispose prior to the transfer. In the case of bankruptcy, Dutch law provides that bankrupt debtors lose their power to dispose from the day that the court has established bankruptcy – including that day itself.4 Only on December 2nd will the buyer/legal practitioner know for sure whether the transfer took place or not, which means that the buyer can only safely transfer the money to the seller on December 2 and not earlier. However, given the fact that in 99% of the cases the transfer of the land is successful on December 1, the exchange also lacks simultaneousness if the purchase price is transferred on December 2. The same problem may occur with the payment: also buyers can go bankrupt during the day on which they transfer the purchase price. Obviously, this principle makes it downright impossible to achieve a truly simultaneous exchange.5 Legal practitioners have often developed their own methods to mimic the result of a simultaneous exchange. Examples include the Scots ‘letter of obligation’ and the Dutch ‘Baarns beslag-brief’. These workarounds increase the fee of the legal practitioner involved with the transfer and hence also add to the transaction costs.

C)

Let us disregard these practical obstacles for a second and focus on the intended outcome of a simultaneous exchange. This intended outcome of a simultaneous exchange is that either both parties perform, or both of them do not. However, the consequences of this principle are harsh. Consider a typical sale of immovable property. The buyer has often viewed several properties prior to making an offer. On today’s market, at least in the Netherlands, the first offer a buyer makes often does not suffice. After the negotiations, once an offer is accepted, the parties – or a legal practitioner – draft(s) a sale purchase agreement that is signed by both parties. In the weeks/months prior to the transfer, the buyer will prepare the move of residence in more depth, by e.g. making an appointment with a moving company, planning renovations of the property, or buying furniture. However, if on the day of the transfer, the seller loses the power to dispose of the asset a few minutes prior to the transfer of the property, the transfer will not take place. This means that all the preparations of the buyer will have been in vain.

For these reasons, legal systems have adopted mechanisms that allow a transfer to take place despite the seller going bankrupt between sale and (intended) transfer. The most exemplary and well-known mechanism is perhaps the priority/advance notice, also known as Vormerkung, which entails registering the sale-purchase agreement of immovable property in the public land records. From that moment on, the buyer of the property is protected in a proprietary sense: even though the buyer has not yet acquired the property, their claim for the transfer of the property will be satisfied, even when the seller goes bankrupt in the meantime. The priority notice therefore provides an elegant solution to all of the issues mentioned above. Let us say that in the mentioned example, the sale purchase agreement of the land is registered in the public land records on November 20. From that moment on, the buyer can pay the purchase price to the seller without running the risk of performing whilst the seller does not perform, because buyers know for sure that they will acquire the property, which eliminates the need for a simultaneous exchange.6 Hence, it is also not required to check whether the seller still has the power to dispose on December 1st at 2.59.59 PM exactly: once it has been established that the priority notice has been registered successfully, which can be checked anywhere from November 21 until November 30, a loss of power to dispose over the asset does not affect the transfer. This solves problems a and b. Furthermore, because the seller’s bankruptcy is no longer an obstacle to the transfer of the property, the buyer is protected in an additional sense compared to a simultaneous exchange. Instead of keeping the purchase price in the event of bankruptcy of the seller, the buyer actually acquires the property itself. Preparations will therefore not have been in vain, which solves problem c.

However, utilising this method comes at a cost. From November 20 until December 1, the transferor/seller cannot dispose of the property to someone else than the buyer. The creditors of the seller can no longer successfully take recourse against the sold property. Neither can the creditors of the buyer, although the creditors of the buyer can take recourse against the purchase price, until the transfer takes place. This all changes after the transfer of the property and the purchase price: after the transfer, the seller is entitled to the purchase price, which can be attached by the sellers’ creditors. The property itself then belongs to the buyer and can be attached by the buyers’ creditors. However, during the period between registration of the sale purchase agreement and the transfer of the property – from November 20 until December 1 – one may classify the status of the property as that of property placed in a ‘legal vacuum’. Even though the property does not yet belong to the buyer, the seller – and the sellers’ creditors – cannot ‘touch’ the property, because the vacuum conserves the property for transfer to the buyer later on. For this reason, this article refers to the priority notice and similar instruments as ‘vacuum instruments’ from now on. The existence of this legal vacuum, however, is considered somewhat undesirable. One should, in general, be able to freely dispose of assets in a commercial context, and creditors need collateral to seek recourse against, in case debtors do not fulfill their obligations.7 The million-dollar question, therefore, is: which circumstances justify the usage of such a vacuum to secure the performance interest?

It is helpful to break this question down into sub-questions. By answering these sub-questions, it is possible to compare all the instruments mentioned in the first paragraph of section 1, even though these instruments are rooted in completely different property law regimes. The sub-questions relate to the properties of the proprietary interest that the buyer may have, after concluding the purchase of an asset, but prior to delivery. The sub-questions are as follows:

1)

Type of asset: to which types of assets does the instrument apply? The German priority notice (Vormerkung), for instance, only applies to one type of asset, namely immovable property, but can also be applied to secure the obligation to vest/transfer/cancel a limited real right (every “dingliche Rechtsänderung”). However, nowadays, other types of assets – such as claims, company shares and intellectual property rights – also play a crucial role in commerce. For these reasons, from now on, this paper will also utilise the more general term ‘grantee’ instead of ‘buyer’, which includes, e.g., parties that wish to obtain a limited real right, as opposed to the ‘grantor’, who grants something to the grantee. If an instrument also applies to the obligation to transfer money, the ‘grantee’ can even refer to the seller.

2)

Type of application: does the instrument apply automatically (like the vendor purchaser constructive trust), or do parties have to explicitly choose for the instrument to apply (like the Dutch priority notice)? Closely related to this question, is the issue of registration: is an additional act of registration required for the instrument to apply or not?

3)

Duration of the instrument: is the duration of the vacuum limited? Priority notices, for instance, are usually limited in this respect: durations vary from four weeks till six months.

4)

Effect: does the instrument protect the grantee against other grantees, against creditors/a bankruptcy trustee, or both? Priority notices usually offer protection against both, but as subsections 3.1 and 3.3 will illustrate, this is by no means self-evident in the context of vacuum instruments.

Section 3 will provide descriptive answers to these sub-questions. It must be noted that the term ‘vacuum instruments’ is not predefined. Hence, section 3 will also help to develop and clarify my definition of a vacuum instrument, by illustrating which traits are characteristic of vacuum instruments and which are not. Section 3 does not intend to create a comprehensive overview of all the applicable instruments in the jurisdictions mentioned in the first paragraph of Section 1, but purports to highlight the differences among these instruments, which proves that there is hardly any consensus as to when a vacuum should be applied and that, hence, there is some room to play with in this regard.

Deze functie is alleen te gebruiken als je bent ingelogd.