Land Charge Priority: Rankings in the German Land Register

How does the ranking in the land register come about?

Basically, the priority principle applies: Who is registered first, has the better rank. The order of registration shall be decided within the same division and the date of registration between divisions II and III. However, the participants can design the order of precedence contractually – via Resignation of rank (one senior creditor resigns after another), Priority reservation (the owner reserves the right to later register a priority right) or Priority change with the consent of all concerned.

Why the rank decides on the conditions

• 1. rank: Lowest risk, best conditions – here is the First-ranking loans or the Senior loans, usually up to 60–80 % of the mortgage lending value.
• 2. rank and lower: Secure here Subordinated loans and Mezzanine capital higher risk of default, higher interest rates.
• Without protection in rem: Purely contractual tranches bear the greatest risk and are remunerated accordingly.

Rank in Structuring Practice

In the case of multi-level capital structures, an intercreditor agreement regulates the interaction of the ranks: Who is allowed to execute when, how are proceeds distributed, what rights does subordination have in the event of disruptions? For property investors, the rank is also the key to Additional borrowingFree ranks behind a partially repaid first-ranking financing can be used to draw liquidity from the property – without touching on the existing financing. We structure such ranking architectures across all tranches, from Senior loans until the Mezzanine capital.