Privileges and Hypothecs under Maltese Law

When a person is lending money or contracting a right in his favour, he may secure such with an obligation from the opposing party. Such security may pertain to the debtor’s present and future. Nonetheless, the security given shall be derived from a lawful cause. On the other hand, it is in the creditor’s interest to ensure that the security given by the debtor is proportionate to the debt or obligation owed.

This article shall focus on hypothecs and privileges as a means to secure debts and obligations whilst building credibility.

A privilege is a right of preference which ranks higher than a hypothec, irrespective of date of registration, and only exists in the circumstances provided by law. The law establishes privileges both as general privileges attaching to all property and special privileges attaching to determinate movables and immovables.

The ranking of privileges is established ex lege. The Maltese Courts have interpreted privileges as to be “Il privilegio e' un diritto soggettivo reale costituito sui beni del debitore a vantaggio del creditore in soddisfacimento di una obbligazione[1]”. This backs the legislator’s intention of prioritising privileges according to the nature and quality of the debt. Hence, the law establishes the order of the ranking based on this ethos.

The law establishes timeframes within which privileges are to be registered with the Maltese Public Registry. Moreover, special privileges which attach to determinate movables and general privileges shall cease to exist when the secured property is transferred to a third party. Nonetheless, a special privilege attaching to a determinate immovable shall still be enforceable by the creditor when it is transferred to a third party without the creditor’s prior consent.

Hypothecs are another form of security provided to a creditor for the fulfilment of an obligation. There are three types of hypothecs:

  1. Legal hypothec – hypothecs created by law but which still rank according to the date of registration;
  2. Judicial hypothec – hypothecs originating from awards of arbitrators, an executive title and decisions given by courts outside of Malta; and
  3. Conventional hypothec – hypothecs established by a contract. These have to be registered by a public deed and contracted by a person having the capacity to contact. Moreover, the property secured by the hypothec must be owned by the person giving security.

Similar to privileges, hypothecs can also be general or special in nature. However, special hypothecs, unlike special privileges, shall only be able to attach on determinate immovable property and not movables.

Diritto di seguito or droit de suite is a right whereby a creditor is able to be ranked and paid according to the order within which he is due in accordance with the law and registration date, irrespective of whether the owner of the property is the debtor or otherwise. Therefore, if the property is sold by the debtor, the creditor is able to enforce his security on the property even though it has been sold by the debtor. This is a right enjoyed by special hypothecs and special privileges over immovables.

The action to enforce such right would be the actio ipotecaria and the following elements shall be present:

  • The existence of the right of the diritto di seguito;
  • A third-party having possession of a property subject to this right;
  • Security giving rise to such right is registered; and
  • Enforceability of the debt.

Nonetheless, the third party in possession shall still have the possibility to pay the debt to safeguard his possession. The success of the actio ipotecaria leads the secured immovable to a judicial sale in favour of the creditor. However, this action is not one which cannot be contested as there are routes of defence the third party and the debtor may adopt in order prevent the success of this action and the property from judicial sale.

For more information or assistance regarding privileges and hypothecs, feel free to contact us at info@gtg.com.mt.

Author: Neil Gauci


[1] English translation: The privilege is a real subjective right established on the debtor's assets or the benefit of the creditor in satisfaction of an obligation.

Disclaimer This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
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