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Part Three of the series “Practical Guide to the Lebanese Code of Real Property”, covering Articles 91 to 116 of Decree No. 3339 of 12 November 1930 (Book IV — Of the Rights of Pledge): the vente à réméré in its Lebanese sense (pledge by transfer of property) and the sale with right of exploitation; then the conventional gage immobilier, its fundamental rules, the principle of indivisibility, the prohibition of the pacte commissoire, the maintenance duties of the creditor, and the extinction of the pledge by cancellation of the inscription at the Land Registry.

Arabic original: الرهن العقاري والبيع بالوفاء في القانون اللبناني — الجزء الثالث من الدليل العملي لقانون الملكية العقارية.

French version: Le gage immobilier et la « vente à réméré » en droit libanais — Troisième partie du Guide pratique du Code de la propriété foncière.

Introduction

In Part Two of this series we set out the rules of real-property easements in their three sources — natural, legal and conventional — together with their conditions of exercise and modes of extinction by cancellation (Articles 56 to 90 of the Lebanese Code of Real Property — Decree No. 3339 of 12 November 1930, hereafter the CRP). This Part moves to Book IV of the same Decree (Articles 91 to 116), entitled “Of the Rights of Pledge”.

Book IV brings together two regimes that share a single economic function — securing the payment of a claim against an immovable — but differ radically in their legal construction.

• Chapter I (Articles 91 to 100): the pledge by transfer of property — that is, the vente à réméré in its Lebanese sense, and its derivative form, the sale with right of exploitation. Ownership of the immovable is transferred temporarily to the creditor (the buyer), while the debtor (the seller) retains the right to recover the immovable by restoring the price.
• Chapter II (Articles 101 to 116): the conventional gage immobilier — ownership remains in the debtor’s hands, and the creditor acquires an accessory real right that confers on him the right to retain the immovable and to pursue forced sale in default of payment.

Book IV must be distinguished from Book V (Articles 117 to 173, treated in Part Four), which governs the privileges and hypothèques. In the civil-law architecture of the CRP, Book IV’s gage immobilier is in principle a possessory security (Article 101 contemplates remise of the immovable into the hands of the creditor or of a third-party detainer), while Book V’s hypothèque is a non-possessory security constituted by the sole inscription on the Land Registry. Modern Lebanese banking practice has tended to converge the two by relying on the registry inscription, but the textual organisation maintains the distinction. The English-language commentary that follows uses gage (in Book IV) and mortgage (in Book V’s hypothèque, treated in Part Four) to preserve the architectural distinction.

Textual stability of Book IV is exceptional: of its twenty-six articles, only one has been amended in ninety-five years — Article 104, by Decree No. 31/LR of 14 February 1941 and Decree No. 295 of 28 May 1942, on the immovables susceptible of being pledged. All other provisions remain in their original 1930 drafting, and a substantial body of case law has accumulated around them.

Scope of this Part: Articles 91 to 116 of the CRP, organised as follows:

• Articles 91 to 92: definition of the vente à réméré in its Lebanese sense and of the sale with right of exploitation;
• Articles 93 to 100: rights and obligations of the parties during the vente à réméré;
• Articles 101 to 105: definition of the gage immobilier, its fundamental rules, and the immovables susceptible of being pledged;
• Articles 106 to 108: indivisibility of the pledge, prohibition of the pacte commissoire, and custody of the immovable;
• Articles 109 to 111: effects of the pledge on prior real rights and on the accessories of the immovable, and the rule of exploitation;
• Article 112: maintenance of the immovable by the creditor and the related costs;
• Articles 113 to 115: indivisibility of the debt, prohibition of unilateral disposition, and loan for use of the pledged immovable to the debtor;
• Article 116: extinction of the pledge and cancellation of the inscription at the Land Registry.

I. Definition of the vente à réméré and the sale with right of exploitation

The vente à réméré in its Lebanese sense

Article 91 of the CRP defines the vente à réméré — designated by the Lebanese drafter as “the pledge by transfer of property” — in these terms:

The vente à réméré (bai‘ bi-l-wafā), or pledge by transfer of property, is the sale of an immovable on condition that the seller, at any time or at the expiration of the fixed term, may recover the sold immovable against restitution of the price; the buyer, on returning the immovable, recovers the price paid.

Three essential elements emerge.

First — a valid sale operating transfer of property. The immovable is inscribed in the buyer’s name on the Land Registry, and the buyer becomes the owner in law. In economic reality, however, the buyer is in the position of a secured creditor: the ownership he acquires is intended only to secure the repayment of the price.

Second — a right of recovery for the seller. The seller retains, according to the stipulations of the contract, the right to recover the immovable by restoring the price, either at any time or at the expiration of a determined term.

Third — a right of recovery of the price for the buyer. Parallel to the seller’s right, the buyer recovers the price as soon as the immovable is restored to him.

#### Distinction from the classical vente à réméré of Article 473 of the Code of Obligations and Contracts

The two regimes coexist in Lebanese law despite the similarity of their names and their economic structure. It is settled case law that the distinction operates as follows.

• Under the regime of the vente à réméré of the CRP (Decree 3339): case law treats the buyer as a secured creditor (créancier gagiste) who, in default of restitution of the price by the seller, has no recourse other than forced sale on the immovable under Article 100 of the CRP. The buyer does not become permanent owner at the term’s expiry; he must take the route of judicial sale to recover his claim.
• Under the classical vente à réméré of Article 473 of the Code of Obligations and Contracts (COC): if the seller does not recover the immovable within the agreed term, the buyer becomes permanent owner. The maximum term is fixed at three years; any stipulation providing for a longer term is reduced to three years by operation of law.

Case law has further specified that the provisions of Decree 3339 on the vente à réméré were not abrogated by the promulgation of the COC: the two regimes are independent, each with its own textual foundation and its own legal effects. The applicable regime is determined by reference to the qualification willed by the parties and the economy of the contract, read in light of its true cause. The institution has no clean common-law equivalent: the buyer takes title for the duration but, unlike the holder of a contractual option to repurchase, recovers his claim only through judicial sale (not automatic forfeiture) at the term’s expiry. Retaining the French term in English-language commentary acknowledges the absence of any single equivalent.

The sale with right of exploitation

Article 92 admits in principle that every immovable susceptible of being sold may be the object of a vente à réméré. It then opens a variant:

The contract of vente à réméré may stipulate that the seller continues to occupy the immovable in the capacity of a lessee (which constitutes the sale with right of exploitation, bai‘ bi-l-istighlāl).

Ownership is transferred to the buyer but the seller continues to occupy the immovable as a lessee, paying rent to the buyer for the duration of the contract. The arrangement preserves the occupational stability of the seller-debtor while procuring for the buyer-creditor a monthly income imputable, according to the agreement, on the capital of the debt or on interest.

II. Rights and obligations of the parties during the vente à réméré

Prohibition of unilateral disposition

For the duration of the contract, neither the buyer nor the seller may alienate the immovable, lease it, or create real rights upon it, save with their express and mutual consent (Article 93). The prohibition is crossed and is intended to guarantee the restitution of the immovable, free and intact, at the moment the right of recovery is exercised.

Conventions on exploitation

Article 94 authorises the parties to stipulate that the buyer enjoys a determined use of the immovable without consideration or benefits from a fraction of the yield. Such stipulations function in practice as a tacit compensation for the immobilisation of the price during the term of the contract.

Maintenance, repairs and the account of the yield

In the absence of contrary agreement, Article 95 places on the buyer the maintenance of the immovable and the execution of useful and necessary repairs; the costs are deducted from the yield. The same article adds a second rule: if the buyer has taken possession of the immovable, he is accountable to the seller for the proceeds, unless otherwise agreed. The reckoning is made annually — the proceeds are deducted from the capital of the debt, after imputation of the proceeds that fall to the buyer’s own account and defalcation of the maintenance and repair costs.

Liability for damage and the insurance contract

Article 96 establishes a precise mechanism for treating damage to the immovable. The amount of damage or destruction is imputed on the capital of the debt; if it equals the sale price, the sale is rescinded by operation of law; if it exceeds the price, the excess remains chargeable to the buyer; and cases of force majeure are excepted.

Where the immovable is covered by an insurance contract, the indemnity paid by the insurance company is appropriated by preference to the discharge of the creditor’s claim (that is, the seller exercising the right of recovery), and the debtor’s debt is extinguished to the extent of the indemnity. The rule has frequent practical application and deserves attention: the insurance indemnity does not return to the property owner alone; it serves in priority to extinguish the debt that the sale was intended to secure.

Transmission of the right of resolution by death

On the death of the buyer or the seller, the right of resolution passes to their heirs (Article 97). The vente à réméré — though concluded in consideration of the personal needs of the parties — produces effects transmissible by succession.

Indivisibility of the vente à réméré

The indivisibility of the vente à réméré is established by Article 98: it subsists even though the debt may be divided among the heirs of the buyer or the seller. The practical reach is clear: it does not suffice for one heir of the seller to restore his share of the debt to recover a fraction of the immovable; payment of the entirety of the debt is required to recover the immovable in its entirety.

Protection of the buyer against the seller’s creditors

For the entire duration of the contract, and before the price has been paid into the buyer’s hands, the creditors of the seller may not exercise any right over the immovable (Article 99). The rule protects the buyer against attempts by the seller’s creditors to impoverish his patrimony after the sale.

Default of restitution of the price

In default of restitution of the price by the seller at the term’s expiry, the buyer may demand the sale of the immovable to recover his claim on the price (Article 100). This is the disposition on which case law founds the qualification of the buyer as a secured creditor: in default of payment he does not acquire full ownership but must take the route of forced sale, which unfolds under the rules of execution on immovables provided by the Lebanese Code of Civil Procedure (Article 827 and following).

Proof of simulation. Some parties seek to disguise a pledge under the apparent form of a sale in order to evade the prohibition of the pacte commissoire of Article 107 (treated below). It is settled case law that a sale simulated to disguise a pledge contravenes public order and constitutes a fraud on the law. The real contract may then be proved, including between the parties themselves, by any means of proof, including presumptions.

III. Definition of the conventional gage immobilier and fundamental rules

The definition of the gage immobilier

Article 101 opens Chapter II by furnishing the central definition:

The gage is the contract by which the debtor places an immovable in the hands of his creditor, or in the hands of a third party chosen by the parties, conferring on the creditor the right to retain the immovable until integral payment of his claim. In default of payment, the creditor has the right to pursue the expropriation of his debtor by the legal channels.

Four essential elements emerge.

First — a contract. The pledge of Chapter II is a conventional pledge, born of the parties’ consent. It is distinguished from the hypothèque of Book V, which may be born of the law or of a judicial decision (Articles 117 and following, treated in Part Four).

Second — the remise of the immovable to the creditor or to a third-party detainer. The creditor may take the immovable into his own possession, or possession may be confided to a neutral third party (a sequestrator) who detains it for both parties’ account. This requirement of remise is the structural feature that distinguishes the gage immobilier from the hypothèque of Book V: in civil-law architecture the gage is a possessory security, the hypothèque a non-possessory security based on inscription alone — corresponding broadly to the common-law distinction between pledge and mortgage.

Third — the right of retention. The gage creditor — designated in French civil-law usage as the gagiste — has the right to retain the immovable until integral payment of the claim.

Fourth — the right to pursue expropriation. In default of payment at the term’s expiry, the creditor may proceed to the expropriation of the debtor by the legal channels — that is, forced sale on the immovable under the rules of the Lebanese Code of Civil Procedure.

In contemporary Lebanese banking, the creditor most often contents itself with inscribing the pledge on the real folio at the Land Registry, without physical dispossession. The usage does not contravene the text — the right of retention subsists, but is given effect through registry inscription rather than through possession — and produces a functional rapprochement between the conventional gage immobilier and the hypothèque, while the two regimes remain distinct in textual architecture.

The lawful object of the pledge

The pledge may not be affected to the guarantee of obligations to do or not to do (Article 102).

The gage immobilier may guarantee only a pecuniary obligation expressed in a sum of money. It may not be affected to the guarantee of obligations to do or not to do (such as a non-competition undertaking or an obligation to furnish a determined service). The obligation guaranteed must be susceptible of expression as a sum payable in monetary terms.

The accessory character of the pledge

The validity of the pledge is subordinated to the existence of a debt validly established (Article 103).

The gage immobilier is an accessory real right: it does not subsist by itself but by virtue of the claim it secures. If the claim ceases — whether because it has not been born, because it has been annulled, or because it has been extinguished by payment, prescription or any other cause — the pledge ceases as well, by virtue of its accessory nature.

The immovables susceptible of being pledged

Article 104 was amended by Decree No. 31/LR of 14 February 1941 and Decree No. 295 of 28 May 1942; its current drafting reads:

Every immovable susceptible of being sold may be pledged.

The undivided shares of a co-owned immovable may not be pledged.

Two rules.

First — the correlation between alienability and pledgeability. Every immovable susceptible of being sold may be pledged; the corollary applies — that which is not susceptible of sale is not susceptible of pledge. Excluded are public-domain assets covered by the first paragraph of Article 9 of the CRP, and all assets outside commerce.

Second — the prohibition of pledges on undivided shares. Undivided shares of a co-owned immovable, taken in isolation, may not be pledged. The restriction leads in practice to the requirement of a prior partition of the immovable — either by partition in kind or by licitation — before a determined share may be allotted to an autonomous pledge.

The pledge of an immovable in guarantee of another’s debt

An immovable may be pledged in guarantee of a debt owed by a third party (Article 105).

The owner may thus pledge his immovable to secure the debt of another (a relative, an associate, a company). The pledgor is not, in this hypothesis, the principal debtor; the immovable supports the security of a debt for which personal liability lies with a third party. The usage is widespread in bank lending — for instance, where a relative or business associate guarantees by his immovable a loan extended to an enterprise or to an individual.

IV. Indivisibility, prohibition of the pacte commissoire, and custody

The principle of indivisibility

The pledged immovable, in its entirety, guarantees each fraction of the debt; in consequence, the debtor may not claim the enjoyment of his immovable before the integral extinction of the debt (Article 106).

Each fragment of the immovable secures each fraction of the debt, and each fraction of the debt is secured by the entirety of the immovable. The debtor may not claim the release of a fraction of the immovable proportionate to a partial payment of the debt. The rule is essential to the protection of the creditor.

The prohibition of the pacte commissoire

It may not be agreed that, in default of payment of the debt, the pledged immovable shall remain the property of the creditor (Article 107).

This prohibition — designated in civil-law doctrine as the pacte commissoire — is a rule of public order and constitutes an essential safeguard of the debtor. The parties may not agree, neither in the initial pledge contract nor in any subsequent convention, that ownership of the immovable shall pass automatically to the creditor in default of payment at the term’s expiry. It is settled case law that the rule belongs to public order; any clause stipulating that the immovable shall become the property pure and simple of the creditor by the sole effect of non-payment is struck with absolute nullity. The Lebanese rule corresponds in substance to the policy that displaced strict foreclosure in English equity: the creditor may realise the security, but he may not appropriate it.

The prohibition extends by analogy to the contract of hypothèque of Book V, even though the text is inscribed in the chapter on the pledge. The regimes of the hypothèque and the gage immobilier serve a common end — to furnish a special security to the creditor — and it would not be justified to tolerate automatic attribution in one and to prohibit it in the other.

In default of payment, the route open to the creditor is unique: the expropriation of the debtor by the legal channels (Article 101 in fine) — that is, the forced sale and the distribution of the price by preference to the inscribed creditors.

The custody of the pledged immovable

The immovable remains under the surveillance of the holder; it remains in the custody of the owner and at his risk, save where the pledgee creditor proves the occurrence of a case of force majeure (Article 108).

The “holder” may be the creditor himself, an agreed third-party detainer, or the owner where he has retained material possession (the configuration common in contemporary bank pledges). Liability for the thing rests in principle on the owner; the pledgee creditor may, however, free himself of any secondary liability by proving the occurrence of a case of force majeure.

V. Prior real rights, accessories of the immovable, and the rule of exploitation

Respect for prior real rights

The pledge does not affect real rights validly constituted and preserved on the immovable before its inscription on the Land Registry (Article 109).

The disposition consecrates the principle of chronological priority that runs through the whole of Lebanese real-property law: a real right inscribed prior to the pledge takes priority over it. A previously inscribed easement, a usufruct, a prior pledge, a hypothèque — all of these securities and dismemberments survive the later pledge, which takes the immovable in the state in which it is found on the real folio at the moment of inscription.

The extension of the pledge to accessories

The pledge extends to all things which were or have become integral parts of the immovable, to its proceeds, and to its necessary accessories (Article 110).

Three categories of accessories are encompassed by the pledge: the integral parts (constructions, walls, foundations); the proceeds (fruits, harvests, revenues drawn from the immovable); and the necessary accessories (entryways, internal water pipes, the main gate). The practical importance is revealed at forced sale: the execution extends to all these categories, and the debtor may not extract improvements or additions in order to diminish the recoverable value.

The rule of exploitation — no gratuitous enjoyment for the creditor

The creditor may not, without the consent of the debtor, draw a gratuitous enjoyment from the pledged immovable; he is bound to exploit all the fruits susceptible of being drawn, which are imputed on the secured debt — even before its term falls due — first on the interest and charges, then on the capital (Article 111).

Three rules bound together. First — the prohibition of gratuitous enjoyment: the creditor may not draw any profit from the immovable without consideration; any enjoyment is imputed on the debt. Second — the obligation of exploitation: the creditor is bound to exploit all fruits susceptible of being drawn from the immovable; he may not allow them to perish. Third — the order of imputation: fruits are imputed first on the interest and charges, then on the capital of the debt, and this even before the term of the principal debt falls due.

VI. Maintenance of the immovable by the creditor

The creditor must attend to the maintenance of the pledged immovable and to the execution of useful and necessary repairs; he draws the costs from the fruits, or recovers them by preference on the price of the immovable. He may always free himself of these obligations by abandoning the pledge (Article 112).

Three rules. First — the obligation of maintenance on the detaining creditor. The creditor who detains the immovable must conserve it and execute the useful and necessary repairs; he may not allow it to deteriorate. Second — the recovery of costs. He draws them first from the fruits; in default of sufficient fruits, on the price of the immovable by preference over other creditors. Third — the right of abandonment. The creditor may at any time abandon his pledge and so free himself of the resulting obligations; the abandonment deprives him of the real security and reduces him to the condition of an ordinary unsecured creditor.

Where the credit institution does not take possession of the immovable — the standard configuration in contemporary bank pledges — the pledge is divested of the maintenance obligation, and the debtor continues to maintain his immovable. The rule comes into operation only where possession has effectively been transferred to the creditor, or where conservatory measures ordered during litigation temporarily confide the immovable to the creditor or to a sequestrator.

VII. Indivisibility of the debt, prohibition of unilateral disposition, loan for use

Indivisibility in the face of succession

Article 113 governs the hypothesis where the debtor or creditor dies and the debt is distributed among the heirs: the division of debts or claims by succession does not entail the corresponding division in the pledged immovable. The heir of the debtor who discharges his quota-part of the debt may not claim a fraction of the immovable equivalent to his share; conversely, the heir of the creditor who receives his quota-part may not deliver a fraction of the immovable to the debtor at the prejudice of his coheirs who have not yet been paid. The rule flows from the logic of indivisibility of the pledge.

Prohibition of unilateral disposition and nullity by operation of law

Neither the debtor nor the creditor shall dispose of the pledged immovable without their mutual consent, and any contract concluded in violation of these rules is null by operation of law (Article 114).

Nullity here is by operation of law — that is, it operates by the sole force of the law, without need of a constitutive action in court. The rule applies to any unilateral act of disposition over the immovable, whatever its form: sale, long-term lease, constitution of an easement, allocation to another pledge. The mutual consent must be express and must take the form appropriate to the act in question.

Loan for use and lease to the debtor

The pledged immovable that the pledgee creditor lends to the debtor, or that he leases to him, remains affected to the security of the debt (Article 115).

In both hypotheses — loan for use (without consideration) or lease (with rent) — these operations do not strip the immovable of its quality as pledged. The security remains intact, and the creditor preserves the right to realise it through expropriation in default of payment. The rule prevents a manoeuvre that some parties might employ to empty the pledge of its substance, by materially restituting the immovable to the debtor in a purely apparent form.

VIII. Extinction of the pledge and cancellation of the inscription

Article 116 closes Book IV by a brief rule:

The pledge is extinguished: by payment of the debt at the term’s expiry; by agreement between the debtor and the pledgee creditor; or by the sole will of the creditor. The extinction of the pledge does not produce its effects with regard to third parties until cancellation of the inscription at the Land Registry.

Three modes of extinction converge on a single administrative formality: the cancellation of the inscription.

First mode — extinction by payment. By virtue of its accessory nature, the pledge ceases with the debt it secures. This is the most frequent hypothesis in practice.

Second mode — extinction by agreement. The debtor and the pledgee creditor agree — whether before the term’s expiry or for any other cause — to the discharge of the pledge. A written deed is drawn up and submitted to the Land Registrar.

Third mode — unilateral renunciation by the creditor. The creditor alone may renounce his pledge right, and the pledge ceases without need of the debtor’s consent: the pledge is a right of the creditor, and he may renounce it freely.

The locking rule — cancellation as the condition of opposability to third parties. The extinction of the pledge does not produce its effects with regard to third parties until cancellation of the inscription at the Land Registry. As long as the cancellation is not effected, the pledge remains opposable to third parties who may consult the real folio and act on what is inscribed there. The practical corollary is that the debtor cannot content himself with having paid the debt; he must pursue with the Land Registrar the effective cancellation, until the folio is freed of any mention.

IX. Conclusion and outlook for Part Four

This Part has covered Articles 91 to 116 of the CRP, which govern two distinct figures of security against an immovable: the vente à réméré in its Lebanese sense — and its variant, the sale with right of exploitation — which transfers ownership temporarily to the creditor with a right of recovery for the debtor; and the conventional gage immobilier, which maintains ownership in the debtor’s hands while conferring on the creditor a right of retention and a right of pursuit by forced sale. The twenty-six articles have been substantially stable since 1930, with a single modification on Article 104 in 1941 and 1942.

The essential points are the following.

• The vente à réméré of the CRP is not the classical vente à réméré of the COC. The first places the buyer in the position of a secured creditor with recourse only to forced sale; the second confers full ownership at the term’s expiry where the seller has not exercised his recovery right (the term being capped at three years by Article 474 COC).
• The clause attributing the immovable automatically to the creditor in default of payment is void under the prohibition of the pacte commissoire (Article 107), whatever the formulation employed: automatic attribution, transfer by operation of law, pledge simulated under the apparent form of a sale. The sole route open to the creditor is expropriation by the legal channels.
• The indivisibility of the pledge (Articles 106 and 113) bars partial release of the immovable against partial payment, including in succession scenarios.
• Cancellation of the inscription is the condition of opposability to third parties of the extinction of the pledge (Article 116). Payment alone does not suffice to free the immovable at the Land Registry.
• The insurance indemnity is appropriated by preference to the discharge of the debt (Article 96) before any portion returns to the property owner.

In Part Four of this series, we move to Book V of Decree 3339 — Of Privileges and Hypothèques (Articles 117 to 173). Book V completes the regime of real-property securities by two institutions distinct from the conventional pledge: the privileges, which the law itself confers on certain categories of creditors by reason of the nature of their claim (the State, the seller, the contractor, and others); and the hypothèques (legal, conventional, judicial), with their respective rankings and the rules of inscription and cancellation. Book V also treats the rules of forced expropriation — the procedure that the pledged creditor invokes, on the basis of Article 101 and the rules of execution in the Lebanese Code of Civil Procedure, to recover his claim from the price of the immovable.

Practical tool: to compute the registration fees for any real-estate transaction (sale, mortgage, mortgage release, constitution of a usufruct), see Lebanese Real Estate Registration Fees Calculator and our complete guide to real-estate registration fees.

Related Posts in This Series

This series covers the Lebanese Code of Real Property in eight parts.

• Part One — Definition of Real Property and Types of Ownership
• Part Two — Real-Property Easements
• Part Three — The Immovable Pledge and the Vente à Réméré (you are here)
• Part Four — Privileges, the Mortgage, and the Forced Sale
• Part Five — Promise of Sale, Right of Pre-emption, and Acquisitive Prescription
• Part Six — The Land Registry
• Part Seven — Land Delimitation and Registration Works
• Part Eight (final) — Condominium Ownership of Built Immovables