Lien

What it means

A lien secures a claim with a thing or a right: if the debtor does not pay, the creditor is satisfied out of the pledged asset. The institute sits in the Civil Code and arises by contract, by statute or by decision of an authority.

It binds every later owner of the thing, not only the original debtor. A buyer does not escape it by never having heard of it: the lien travels with the asset and the creditor can still realise it once the owner has changed.

A lien differs from an easement in both purpose and duration. An easement burdens the owner permanently for someone else’s benefit, such as a right of way, whereas a lien only secures a debt: the owner keeps using the asset and the lien ends once the debt is paid. Paying the debt does not, however, remove the entry the land register or the lien register holds about it.

How it works in practice

Over real estate it arises on entry in the land register; over movables, most often on registration in the notarial central register of liens. Ranking follows the time of creation and decides who gets paid first.

A bank secures a loan with it, a supplier secures deferred payment. The tax administrator may create one by decision over a debtor’s assets for a tax arrear, and the company often learns of it only when it tries to sell the asset.

In the notes to the financial statements we list the assets encumbered by a lien and in whose favour; banks and investors read that among the first things. Once a loan is repaid, we remind the client that the entry does not vanish by itself: it takes the creditor’s confirmation that the lien has ended and an application for deletion, or the register keeps showing it and holds up a buyer.

What to watch out for

Buying a second-hand machine or vehicle, people forget the register of liens. If a lien sits on the thing, the creditor will sell it out from under the new owner, who is left with nothing but a claim against a seller that has already spent the money.

Loan agreements with covenants usually forbid selling or further encumbering pledged assets without the bank’s consent. A company that sells a machine because it no longer needs it is in breach, and the bank may declare the whole loan immediately due. Money the company was repaying over years then has to be found at once.