European Real Estate Finance: Market Update – Q2 2025

Coalition Agreement 

The coalition agreement of the new German government provides for a series of measures that will have both positive and negative effects on the property sector.  For example, an extension of the rent freeze and an expansion of rent regulation in tight housing markets are to be expected. At the same time, housing subsidies will be strengthened and the modernisation levy adjusted. We consider the following items to be positive for the market:

• Promotion of housing construction: the planned funding is intended to facilitate the construction of new flats, as reported by the Institute for Surveying Engineering and Digitisation.
• New residential construction fund: the introduction of a housing fund is intended to promote private investment in housing construction.
• Stronger promotion of co-operative housing: co-operative housing will be promoted through investment grants.
• Adjustment of the modernisation levy: the modernisation levy is to be adjusted in order to improve the "affordability" of rent and at the same time creates incentives for investment.
• No changes to the taxation of capital gains and wealth tax: the coalition agreement does not provide for any changes to the taxation of capital gains (Section 23 EStG) and wealth tax. 

In contrast, we consider the following items to less favourable to those operating in the market:

• Expansion of rent control and rent regulation: the extension of the rent freeze and the expansion of rent regulation to include serviced living providers could put business models in this area under pressure.
• No changes to real estate transfer tax: no reductions in property transfer tax are planned, which could be a disadvantage for the sector.
• No increase in inheritance tax allowances: an increase in inheritance tax allowances, which was previously promised by the conservative parties, is not included in the coalition agreement. 

In summary, it can be said that the coalition agreement presents the property sector with new challenges, but also offers opportunities for sustainable and affordable housing construction too.

Golden power 

In recent years, the Italian government has significantly broadened the scope of its "Golden Power" regulations (i.e., the ability of the Italian government to scrutinise and potentially intervene (approve or veto) transactions relating to Italian companies that carry our strategic activities or hold assets with strategic relevance in certain sectors deemed critical for Italy, see further information on this here). 

Originally focused on defence, national security, and critical infrastructure, the regime now encompasses a wider array of industries, including energy, telecommunications, finance, and certain areas of real estate. Notably, real estate assets linked to strategic infrastructure — such as those related to energy supply, nuclear facilities, or critical transportation hubs — may fall under the purview of Golden Power provisions. Therefore, when engaging in real estate transactions involving sellers active in these strategic sectors, it is imperative to assess the applicability of Golden Power rules to ensure compliance and avoid potential legal complications.
 

Luxembourg Court Decision on Interest Free Loans

It is common for real estate finance transactions to be structured to utilise the benefits offered by Luxembourg laws; in particular for holding companies higher up the structure.  In most cases funding will be passed down to the borrower(s) through a mix of debt and equity.  

Our clients are advised to take note of a recent decision taken by the Luxembourg Administrative Court which confirmed that (i) interest free loans granted by (indirect) shareholders to a Luxembourg company may be reclassified as hidden equity contributions for tax purposes in certain cases; and (ii) the debt-to-equity ratio of a Luxembourg company must be assessed on a case-by-case basis.

Further details are available from our alert here; but our sponsor clients, borrower side clients (regarding their own tax liabilities), and our lender side client (regarding the potential impact on their receivable servicing), are advised to seek robust tax advice on both their existing and future structures using, or financing, such mix of debt and equity structures, to ensure that the expected benefits are attained, without adverse tax consequences. 

E-Delivery Requirements

On 1 April 2025, it became mandatory for all entities registered with the National Court Register (KRS) before that date to have an electronic delivery address.  Aimed at simplifying communication with public authorities, electronic delivery serves as the electronic equivalent of a registered letter with acknowledgment of receipt, for communication with Polish public entities.  As such, correspondence sent by a public authority to such an electronic delivery address will be deemed delivered 14 days after receipt.  An administrator will need to be appointed to manage the mailbox.  Such administrator will be responsible for receiving, managing and storing a company’s correspondence. 

Currently there are no sanctions for failing to set up the electronic delivery address, but it will result in delays / an inability to communicate with certain public authorities.  That being said, public authorities are still in a transitional phase and have the ability to opt out of using this new regime in the meantime.

Reforms to Judicial Auction Processes 

Organic Law 1/2025 of 2 January 2025 introduced certain reforms to the process of judicial auctions of real estate in enforcement proceedings.  The changes apply to processes initiated on or after 3 April 2025.  Some of the main changes are as follows:

• parties involved in the enforcement are now required to join the auction as bidders, if they wish to participate.  They are now no longer able to wait until the end of the auction to submit a bid.  Where there are no bidders, the judgment debtor may either (i) request that the seizure be lifted, or (ii) designate a third party to acquire the property for at least 50% of the auction value or for the amount of the debt, provided this is not less than 40% of the auction value;
• the executing creditor can no longer improve the winning bid after the auction closes; they must place any bids during the auction itself;
• in the event that the enforcing party is awarded the asset, they have 10 days to pay the difference between the bid amount and the amount of its claim (if any).  Failure to pay will render the auction ‘unsuccessful’ and require that party to bear the costs of a new auction.  Other successful bidders now have 20 days (reduced from 40) to pay the balance; failure to pay by any bidder renders the auction unsuccessful, entails forfeiture of the 20% deposit and — if the bidder is the executing creditor — obliges that party to bear the costs of a new auction;
• all bidders must lodge a deposit equal to 20% of the auction value (minimum €1,000), and bids remain confidential (“blind auction”) until the auction closes;
• any successful bidder, including the executing creditor, may assign the winning bid to a third party within five days without having to reserve this right in advance;
• the ability to make deferred payments has been abolished;
• the electronic auction remains open for 20 calendar days with no extensions; the closing date cannot fall on public holidays or between 24 December and 6 January nor during August; and
• the same Law also introduces other real-estate reforms valued by the market: (i) an expedited criminal procedure to remove squatters from occupied properties; (ii) a 3/5 community-of-owners majority now required to authorise short-term (“tourist”) lettings; and (iii) mandatory alternative dispute resolution (ADR) prior to filing court claims in real-estate matters.

Tax developments affecting transactions with real estate located in Catalonia

The Catalan regional government has introduced significant tax developments in Decree law 5/2025, of March 25, on urgent tax, personnel expenses and other administrative measures (“Decree Law 5/2025”). Most of these changes will take effect three months after the day following its publication, specifically on 27 June 2025.  Some changes of note to our clients are as follows:

• The general tax rate for real estate transfers has been adjusted for higher-value properties. Decree Law 5/2025 has created new brackets and increases the taxation of properties with a value exceeding €600,000. Properties up to this value will be taxed at a rate of 10% if the value if lower than €900,000. The excess of €900,000 and up to €1,500,00 will be taxed at a 11%. The excess of €1,500,000 will be taxed at a 13%;
• A 20% tax rate is established for the purchase of housing properties by “large property holders.”  A large property holder is defined as an individual or legal entity owning more than 10 residential properties or properties with a built surface area exceeding 1,500 m² for residential use in Catalonia. Additionally, a large property holder includes individuals or entities owning five or more urban residential properties within a strained housing market area designated by the Catalan regional government. The regulation specifies that garages and storage rooms are excluded from this count. This 20% rate would not be applicable if the acquirer is a social housing promoter or a non-profit entity that provides housing to people and families in a vulnerable situation;
• A 20% tax rate is also established for the purchase of an entire residential building by an individual or legal entity, regardless of whether the building is divided into condominiums. To prevent fractional purchases of buildings, a specific rule mandates that the final self-assessment must apply this 20% rate, considering the total value of the building, deducting taxes already paid, and adding the applicable late payment interest; and
• The 70% reduction applicable to the transfer of housing to real estate companies for resale within 3 years is eliminated.

Register of Overseas Entities and Trusts 

The requirement to register details of beneficial owners of overseas entities owning land in the UK came into force in 2022, which included details of trusts holding such land.  The Register of Overseas Entities (Protections and Trusts) (Amendment) Regulation 2025 came into force on 24 February 2025 affecting the data held in respect of such trusts (although certain provisions not effective until 31 August 2025).  

Currently, certain information concerning trusts is held on a private section of the register, which includes information on the trust’s settlor and beneficiaries.  Accordingly, the information is not publicly available and only details of the trustees are visible.  From August, the public can apply for access to this information, subject to legitimate interest requirements.  It will, however, be possible for the affected parties (i.e. beneficiaries and the settlor) to make an application to have their information protected from disclosure.  The ability to do this took affect from the end of February; so applications can be made now.

As such, we advise clients utilising such trust structures to consider whether a protection application will need to be made.  These cost £100 currently and Companies House will take at least 30 days to consider the application (although relevant information will be protected during this application process).

Register of Overseas Entities (Annotation) Regulations 2025    

With effect from 30 June 2025, the Register of Overseas Entities (Annotation) Regulations 2025 gives the registrar of companies new powers to annotate the register of overseas entities (i.e. the register under which overseas entities are required to register prior to acquiring real estate in England and Wales). 

Such annotations include:

• specifying if an overseas entity has been dissolved, wound up or otherwise ceases to exist;
• noting if a person has failed to comply with a notice requiring further information issued by Companies House under s 1092A(1) of the Companies Act 2006; and
• specifying where a verifying agent’s credentials have been questioned under certain named provisions.

Economic Crime and Corporate Transparency Act 2023 (ECCTA) – Identity Verification 

One of the reforms introduced by ECCTA was the requirement to verify the identities of those acting for companies.  With the aim of increasing transparency, identity verification will be required for: (i) all new and existing company directors; (ii) all new and existing persons with significant control (PSCs); and (iii) anyone who delivers documents to Companies House on their own behalf or on behalf of another, including authorised corporate service providers (ACSPs).

A director should not take any actions on behalf of the company until their identity is verified. Continuing to act as a director without being verified will amount to an offence committed by the company, punishable by a fine.  Directors who persistently act without having been verified may also face disqualification.  It should be noted, however, that actions undertaken by the director will not be affected and remain valid.

Companies House introduced the ability to voluntarily verify identities from 8 April (whereby Companies House verify the identity of the individual directly), with the compulsory regime taking effect from Autumn (where the ability to verify through an ACSP will also be available) in respect of new appointments of directors and new PSCs.  Autumn also sees the start of the 12-month transition phase to require more than 7 million existing directors and PSCs to verify their identity.  We advise our clients to be aware of such requirements and apply accordingly.    

ECCTA and ACSPs

As noted above, ECCTA has created the role of ACSPs.  ACSPs are individuals or organisations that undertake anti-money laundering (AML) supervised activity, such as: (i) company formation agents; (ii) solicitors; (iii) accountants; and (iv) chartered secretaries and governance professionals.  
From 18 March 2025, third-party providers will be permitted to register their businesses as ACSPs.  Once registered, ACSPs will be authorised to carry out identity checks on behalf of clients for Companies House.  Businesses will also need to register in order to make filings (such as security filings) on behalf of clients, however the provisions related to that are not due to take effect until spring of next year.  For our lender clients that complete their own security filings, for example, the necessity to register as an ACSP should be considered in due course.  

Leasehold and Commonhold Reforms 

In March, the government published a white paper on commonhold reform, proposing to ban the sale of new leasehold flats and make commonhold the default tenure.  A draft of the Leasehold and Commonhold Reform Bill is expected later in the year.  

Commonhold is a form of freehold ownership, whereby each unit holder owns its own unit, but also, with the other members, owns the communal areas related to that unit, through a company (or “commonhold association”).  The commonhold association will be obliged to organise the repair, insurance and maintenance of these areas, but can appoint a managing agent to perform this role.  It is anticipated that this approach will be used for residential flats, as well as mixed-use blocks, although the white paper suggests it could also be used for commercial blocks, retail and shopping centres too.  
It has been possible for residential units to be let on a Commonhold basis since 2004, but it has rarely been used.  The government, however, stresses the success of the Commonhold structure in other jurisdictions, such as Australia and New Zealand.  This consultation follows on from the Leasehold Reform Act 2024 taking effect.  Most of the more onerous obligations thereunder are still pending, such as: (i) making it cheaper for some leaseholders to extend their leases or buy their freehold; (ii) increasing the standard lease extension terms to 990 years; and (iii) banning the sale of new leasehold houses, other than in exceptional circumstances.  However, it appears that leaseholds are generally therefore under attack and our borrower and lender clients should monitor progress here if they are considering investing in this space.  

Legal Assignments following Frischmann v Vaxeal Holdings SA[2023] EWHC 2698

In this case, the court had to consider whether an assignment by a father, to his son, of loans and a guarantee, constituted a legal assignment, when the assignment was executed by the son under a lasting power of attorney.  The court held that a legal assignment under section 136 of the Law of Property Act 1925 had not taken place as the Act required the assignor itself to sign.  The court concluded that if an agent signed on behalf of the assignor, then the assignment would be equitable only.  

Following the case, the City of London Law Society Financial Law Committee (FLC) issued a guidance note considering the implications of the case for attorneys executing on behalf of English companies.  The FLC stated that its opinion was that the decision related to assignments affected by individuals only and legal assignment could be executed by attorneys of English company pursuant to section 47 of the Companies Act 2006.  It stated, a company, unlike an individual, cannot sign in its own name and accordingly would always need to appoint agents to act.  

The note is a welcome clarification for our lender clients, where the use of powers of attorney to assign loans can be a powerful tool in enforcement scenarios.  

Building Safety Levy 

From Autumn 2026, new residential developments in England (with certain exemptions) will incur the building safety levy, to raise revenue to be spent on building safety.  The levy will be charged on all new dwellings and purpose-built student accommodation in England (with certain exemptions) which require a building control application.  The levy charge will depend on the floorspace of the development.  Rates per square metre will be set per local authority area to capture the geographical variation in house prices. 

Exemptions include affordable housing, and developments with fewer than ten units. Previously developed land also benefits from a 50% reduced rate to help ensure these sites remain viable.  Other exemptions include NHS hospitals, care homes, supported housing, children’s homes, domestic abuse shelters, accommodation for armed services personnel and criminal justice accommodation. 

The sanction for non-payment of the levy will be the withholding of a building control completion certificate.  As completion certificates are a legal requirement for buildings over 18m in height (and are required by many mortgage lenders), it could mean that developer struggle to sell and occupy buildings upon completion if the levy is not paid.  

Energy Performance Standards for the private rented sector 

Earlier this year, the UK government published a consultation seeking views on its proposal to raise the minimum energy efficiency standards (MEES) for the private rented sector in England and Wales.  Under the government’s proposal, they aim for private rented homes to have a minimum grade C rating.  This will apply to new tenancies from 2028 and existing tenancies from 2030.  

However, the consultation suggests that other reforms are needed, more notably to the way the energy performance certificates work generally.  The government wants to move away from a system that looks only at energy costs, but also considers heating systems, smart readiness and fabric performance.  Re-testing based on these new standards will then be required.  

Our borrower and lender clients are advised to keep abreast of the results of this consultation in case they are considering investing in this sector, as increases of this sort can be costly.  The findings of the consultation are expected later in the year.