In Cambodia, a mortgage over land is called a hypothec. It is governed by the Civil Code, which has applied since December 21, 2011 and replaced the earlier forms of land security under the 2001 Land Law (mortgage, antichrese and gage).

What is a hypothec?

A hypothec gives a creditor the right to be paid from the value of immovable property, ahead of other creditors, without taking possession of it (Civil Code Article 843). The property may belong to the borrower or to a third party who agrees to provide security. The owner stays in possession and continues to use the property and collect its income.

What property can be hypothecated?

• Land held under hard title – land registered with the cadastral administration at the national level.
• A registered long-term (perpetual) lease – the hypothec is noted on the Certificate of Perpetual Lease.
• A private unit in a co-owned building for which a title certificate has been issued.

A hypothec cannot be registered over land held only under soft title, because that land is not on the national register.

Creation and registration

A hypothec is created by agreement between the creditor and the owner of the property. To be effective against third parties, the agreement must be made in authentic form and registered with the cadastral office where the property is located (Article 845). The instrument lodged for registration is a standard government form in Khmer, and the hypothec is recorded on the title certificate.

Where a party is a company, the cadastral office will normally ask for:

• The loan agreement and the security agreement;
• The company’s articles of association and business registration certificate;
• A corporate resolution approving the transaction; and
• For a lender registered outside Cambodia, notarized copies of its corporate documents.

It is common practice for the lender to hold the original title certificate for the life of the loan.

Priority

• More than one hypothec may be registered over the same property (Article 850).
• Hypothecs rank in the order of their registration (Article 851).
• A creditor may transfer or waive its rank in favor of another creditor, but only by an instrument in authentic form that is itself registered (Article 862).
• Certain preferential rights that arise by law, such as claims for the cost of preserving the property or for construction work on it, can rank ahead of a hypothec.

Effect on a sale of the property

A registered hypothec is an encumbrance on the title. In practice the property is not transferred to a buyer until the hypothec has been released and the release recorded on the title certificate. A buyer or tenant should therefore check the title for registered hypothecs before signing. See Title Due Diligence.

Enforcement on default

If the borrower defaults, the creditor may apply to the competent court for a compulsory sale of the property (Article 853). The creditor is paid from the sale proceeds according to its rank. The creditor does not become the owner of the property simply because the borrower has defaulted.

Foreign lenders

A foreign lender may take and register a hypothec over Cambodian land. Because foreign persons cannot own land in Cambodia, a foreign lender cannot acquire the land on enforcement; its remedy is payment from the proceeds of the court-ordered sale.

Pledge over immovable property

The Civil Code also allows a pledge over immovable property. Unlike a hypothec, a pledge gives the creditor the right to use and enjoy the property, and its term cannot exceed five years, although it can be renewed for further periods of up to five years (Article 838). For these reasons lenders rarely use it.

Release

When the secured debt has been repaid, the parties jointly apply to the cadastral office to release the hypothec, and the note on the title certificate is removed. Until the release is registered, the hypothec continues to appear as an encumbrance.

Registration fees and processing times are set by the authorities and change from time to time. Lenders and borrowers should confirm the current requirements of the relevant cadastral office before closing. See also Secured Financing.