Transcription of preference rights, rights of first refusal and option rights relating to real estate: relevance for practice under Belgian law?

When reforming Belgian property law, the legislator has chosen to broaden the scope of the Belgian real estate publicity system to such rights: preference rights, rights of first refusal and option rights to an immovable right in rem created as from 1 July 2022 can be transcribed at the Property Registry Office (“kantoor Rechtszekerheid/bureau Sécurité juridique ”) in the mortgage registers (“hypotheekregisters/les registres des hypothèques “).

The transcription (“overschrijving/transcription”) of a preference right, right of first refusal or option right has some important practical consequences under Belgian law. We briefly summarise these for you.

Preference rights, rights of first refusal and option rights

First, we explain the differences between the terms preference right, right of first refusal and option right under Belgian law. These terms should not be confused with each other.

• Under a preference right (“voorkeurrecht/droit de préférence”), the owner of a property undertakes to offer the property, when he wants to sell, first to the beneficiary and thus to negotiate with him first.
• In the case of a right of first refusal (“voorkooprecht/droit de préemption”), the owner is obliged, whenever he enters into a sale agreement with a third party, to give the beneficiary the opportunity to purchase the property on a priority basis at the price and terms agreed in the sale agreement (or such other price as would be provided for in the terms of the right of first refusal).
• A purchase option (call option) (“aankoopoptie/option d’achat”) is an agreement under which the prospective buyer is given the option to buy the property for a certain period of time at predetermined terms. The prospective seller may only sell the property to the prospective buyer during that period. Once the prospective buyer exercises the option, the sale is final.

The mirror image of the call option is the sale option (put option) (“verkoopoptie/option de vente”).

There is also the possibility of a so-called “crossed option” (“gekruiste optie/option croisée”). In this case, the prospective seller grants a call option and the prospective buyer a put option. If the prospective buyer does not exercise the call option within the agreed period, the prospective seller has the possibility to exercise the put option for a certain period of time.

Effectiveness vis-à-vis third parties

The transcription in the mortgage registers makes these rights, provided they were granted on or after 1 July 2022, effective vis-à-vis third parties under Belgian law. This means that third parties are deemed to be aware of the preference right, right of first refusal or option right as a result of the transcription. If they nevertheless disregard the right in question, they may be held liable on account of third-party complicity in breach of contract (“derdemedeplichtigheid aan contractbreuk/ tierce complicité de violation contractuelle“). Their bad faith does not need to be proven in concreto.

However, if the preference right, right of first refusal or option right has not been transcribed, not all third parties can invoke the non-effectiveness. Only “protected third parties” can do so, namely third parties in good faith who have a concurring right to the property (and have published it). These are, on the one hand, third parties with a right in rem over the property in question and, on the other hand, creditors enforcing on the property who would be harmed by its transfer.

In other words, by transcribing a preference right, right of first refusal or option right, its beneficiary prevents third parties from acquiring in good faith a concurring right to the same property that is made effective. It also prevents them from publishing rights that they had previously acquired but had not yet published in the mortgage registers and thus from making these rights effective.

The beneficiary is thus protected when the owner/seller sells the property to a third party in disregard of the preference right, right of first refusal or option right. In addition, the transcription also provides greater protection in the event of concurrence with other creditors, for example in the event of bankruptcy (“faillissement/faillite”) or in the event of an attachment (“beslag/saisie”).

You can check whether there is already a transcribed and therefore effective preference right, right of first refusal or option right on a particular property by requesting a mortgage certificate (“hypothecair getuigschrift/certificate hypothécaire”) from the competent Property Registry Office (“kantoor Rechtszekerheid/bureau Sécurité juridique ”).

However, when a preference right, right of first refusal or option right granted before 1 July 2022 has been transcribed, this does not make the right in question effective vis-à-vis third parties. Under the old Belgian property law, the transcription of a preference right, right of first refusal or option right (to the extent it was accepted) only had an informative effect. The actual bad faith of a third-party acquirer must therefore still be evidenced here to establish his third-party complicity in breach of contract. This means that the third party had or should have had de facto knowledge of the existence of the preference right, right of first refusal or option right. The transcription in the mortgage registers is, however, an element that comes into play in assessing the third party’s bad faith.

Requirement of an authentic deed

In order for a preference right, right of first refusal or option right to be transcribed in the mortgage registers, it must be formalised in an authentic deed (e.g. a notarial deed). Indeed, only authentic deeds can be offered for transcription in Belgium.

Sanctions in case of disregard of a preference right, right of first refusal or option right

The modernised Belgian law on obligations, which came into force on 1 January 2023, has brought some changes as regards the sanctions available to the holder of a disregarded preference right, right of first refusal or option right.

If a third party disregards a transcribed preference right, right of first refusal or option right created between 1 July 2022 and 1 January 2023, the sanctions for third-party complicity in breach of contract under the old Belgian law on obligations apply. The holder of the preference right, right of first refusal or option right can claim the nullity of the contract between the seller and the third party as a form of reparation in kind. In a number of legally defined cases, the claim to be substituted for the third-party acquirer is also possible, for example in the event of a disregard of the right of first refusal of the tenant of agricultural lands (“pachter/locataire à ferme””).

Where a third party disregards a transcribed preference right, right of first refusal or option right created after 1 January 2023, the beneficiary of the right may, by applying article 5.26 of the Belgian Civil Code, claim at the expense of the third-party acquirer either reparation of the damage suffered, the non-opposability of the sales contract between the seller and the third party or substitution.

In case of non-opposability of the sale to the third party, the sale has no effect against the holder of the preference right, right of first refusal or option right. However, the sale remains valid between the seller and the third party, unlike in case of the nullity sanction. In case of enforcement by the holder of the preference right, right of first refusal or option right, the third-acquirer can claim damages for breach of contract from the seller. In the case of nullity, this is more difficult.

Substitution refers to the claim of the holder of the preference right, right of first refusal or option right to be substituted for the third-party acquirer at the price and terms agreed between the third party and the seller.

Both the claim for non-opposability and the claim for substitution have to be mentioned in the margin (“gekantmeld/ mentionné en marge “) in the mortgage registers (Article 3.33 Belgian Civil Code).

These sanctions also apply if the preference right, right of first refusal or option right has not been transcribed (or has been transcribed but granted before 1 July 2022), but the bad faith of the third-party acquirer can be proven. However, if the third-party acquirer is in good faith, the holder of the preference right, right of first refusal or option right in that hypothesis only has a claim against the seller for substitute damages.