Introduction

Taiwans Ministry of Finance (MOF) recently approved its first real estate securitization project. The project is based on the securitization of the building, land and rental income streams of the IBM building, a major commercial building in Taipei.

LCS & PARTNERS, as counsel to the arranger, was the principal legal advisor to the parties. This deal is Taiwan’s first approved real estate securitization project, and further represents another milestone in the development of Taiwan’s rapidly developing securitization market.

In a real estate securitization deal, an originator would transfer the relevant real estate property to a trustee, typically a bank (in Taiwan, a "trust" is not a distinct legal entity from the trustee). The trustee will then issue notes to investors, with full recourse against the entrusted building, land and tenancy agreements. The project must be structured pursuant to a securitization plan in compliance with the Real Estate Securitization Law (the "RESL") and approved by the MOF. To comply with the RESL, the plan would provide details for various transactions to effect the transfer of the title of the building and the land from the originator to the trustee. The originator’s right, title and interest in the tenancy agreements will also be assigned to the trust. These transactions, however, trigger requirements under other laws or create an apparent incongruity among different laws.

This article provides a preliminary introduction of some of the legal issues we encountered (thus far) which are likely to recur in future real estate securitization projects in Taiwan.