Law No. 27,271 (the "Law"), dated September 14, 2016, introduced changes to Articles 2189 and 2210 of the Argentine Civil and Commercial Code (the "CCC") which are part of the legal regulation of securities on real estate rights.
The main purpose of the Law is to create saving instruments to promote housing investments; therefore, the modifications to the abovementioned articles are based on the need to adapt the current legal regime to make it possible to fulfill the objectives of the new regulation.
The Law introduces the following amendments to Article 2189 of the CCC, which regulates the so- called "specialty or singularity" principle at the time of the creation of the real estate guarantee:
a) The "specialty or singularity" principle entails an obligation to determine the elements of the credit to be secured, identifying subject, object and cause.
b) In the event that collateral is created to secure undetermined credits, the "specialty or singularity" principle will be deemed fulfilled if the creation instrument indicates the maximum amount to be secured for any concept and the term of the security, which may not exceed ten years.
These modifications eliminate the general requirement of expressing a maximum amount secured to satisfy the "specialty or singularity" principle's conditions.
The original text of Article 2189 of the CCC was in direct conflict with Article 2193 of the CCC, giving rise to the following questions:
- whether the guarantee had a maximum amount that includes interest and costs. Thus, only the maximum amount fixed in the guarantee is protected by the real estate rights. If such amount is not enough to cover all the debt, only the fixed amount would be covered by the real estate rights. The excess would be unsecured; or
- whether the guarantee could be considered to cover the amount of the credit, stating that interest and expenses were also covered by the real estate right. In other words, it was not necessary to fix a maximum amount that covered the amount of the credit plus interest and costs in order for them to be protected by the real estate right. This was the regime of the original Civil Code.
This new text takes us back to the legal regime provided by original Civil Code where no limitation of maximum amount applied and collateral would be created by expressing that the secured quantity is free of interest and costs.
However, if the security is created over undetermined credits, the Law requires expressing a maximum secured amount. The solution provided for by the Law is reasonable since the elements of undetermined credits cannot be identified at the moment of the creation of securities.
Lastly, the Law amends Article 2210 of the CCC extending the validity of the term of the registration of mortgages from 20 to 35 years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.