GU IDE TO BUY ING COMMERC IA L R EA L E S TATE

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CONTENTSIntroduct ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Pre l iminary Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Procedure - Real Estate Transactions . . . . . . . . . . . . 4I . Freehold Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1 . Pr ivate Agreement2 . Notar ia l Deed of Sale and Purchase

I I . Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 . Common Leases2. Commercia l Leases

Tax Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7A. Income TaxB. Property TaxC. Net Worth Tax

What We Offer You Thanksto our Experience in Real Estate . . . . . . . . . . . . . . . . . . . . . . 9Discla imerAbout FELTEN & Associés . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10A Broad Range of Pract ice Areas . . . . . . . . . . . . . . . . . . 11

I N TRODUCT IONLuxembourg is a leading domicile in Europe wherecompanies appreciate, notably for the reasons mentionedin this guide, to invest directly or indirectly in real estate.There are several key factors to the success of Luxem-bourg, including:• ongoing political support for the development of thefinancial services industry;

• increasing investor awareness of Luxembourg funds;• a high level of investor protection;• a f lexible onshore regime for sett ing up highly sophisticated and tax eff icient real estate vehiclesinvesting internationally;

• the presence of experienced service providers.

Our law firm is specialized in any kind of advicerelating to the advantages thereof, as explainedin more detai ls in the last sect ions (“What weoffer you” - “About FELTEN & Associés”).

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The following guide is an overview of Luxembourg real estate investment vehicles,the legal and regulatory f ramework of Luxembourg, and the tax speci f ic i t ies ofth is k ind of t ransact ions. Luxembourg law ment ions two types of d i f ferent ex is t ing investment s tructures :superv ised vehic les and non-superv ised vehic les .The f i rs t one i s superv ised by the Luxembourg f inanc ia l sector superv isory au thor i ty (“Commiss ion de Surve i l lance du Secteur F inanc ier” ) . Among the superv ised vehic les , the most known structures are the “SIF” and the “SICAR”.The second one , no t superv ised , i s the “SOPARFI” . Th is k ind o f company i s acommercial corporate vehicle and is a imed at investments in qual i fy ing f inancialpart ic ipat ions.Both k inds of vehic les were in t roduced, wi thout be ing l imi ted to th is purpose,for real estate reasons.Luxembourg is one of the leading European domici les for vehic les invest ing ininternat ional real estate .

Indeed, in accordance with the law of 10 August 1915 on commercial companies,as amended, companies may be incorporated in Luxembourg, as a :• publ ic l imi ted company;• pr ivate l imi ted company;• l imi ted partnership ;• partnership l imi ted by shares;• cooperat ive company;• specia l l imi ted partnership .

In practice, the legal form of a public l imited company (Société Anonyme or SA )or a pr ivate l imited company (Société à Responsabi l i té L imitée or Sarl ) is mostcommonly chosen for companies inves t ing in real es ta te . One o f the main features of these two forms of companies is the l imited l iabi l i ty of each share-holder to the amount of their part icipat ion in the company ( this also appl ies tothe partnership l imited by shares) .

PRE L IM INARYMATTERS

I . FREEHOLD OWNERSHIP

Ownership is the right, mentioned in the Luxembourg Civil Code, to enjoy and disposeof assets absolute ly.

Dif ferent k inds of r ights relat ing to the ownership of a real estate exist accordingto the Luxembourg Civ i l Code. F i rst , at the top of the scale , the ownership grantsthe ent i re r ight of the real estate . Apart f rom that k ind of absolute r ight , i t maytake the form o f long- term leases , be tween 27 years and 99 years ( the so-ca l led “dro i t d ’emphytéose” ) , o r r igh ts wi th a max imum of 99 years ( the so-ca l led “dro i t de super f ic ie” ) , usu f ructs or easements . In those cases , the benef ic iary of the real estate is bound to the owner wi th a lease agreement ,and the lessor has the guarantee of incomes over a long per iod.

The Luxembourg Civ i l Code does not ment ion any speci f ic ru les concerning thekind of agreement to be s igned: a sa les agreement is the agreement that shal lmention the agreement of any party to the transfer of the ownership of the building.As soon as the mutual consent between the vendor and the purchaser as to thespec i f ic asset and the pr ice i s accepted , the cont ract may be cons idered asbeing entered into .

In order to ensure the t ransact ion, most of the purchasers contact Luxembourglawyers in order to conduct due d i l igences on the property.I f a bui ld ing belongs to a company, and the shareholder of the company wantsto se l l the i r shares , the agreement sha l l be made in accordance wi th a sharepurchase agreement (“SPA”) .

Thereaf ter, an SPA is drawn up to secure the sa le . The content i s cond i t iona lupon the results of the various due dil igences and on the tax and financial structureof the t ransact ion.

P ROCEDURE R EA L E S TATE T RANSACT IONS

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In Luxembourg the acquisi t ion of a bui lding wil l be carr ied out in two steps: • The sales agreement ;• The notar ia l deed.

1. Private Agreement

According to the Luxembourg Civi l Code, such an agreement has to meet some legal requirements in order to be considered as being an agreement. The contracthas to contain an offer, i .e. an undertaking to sell . In practice, this f irst private agreement takes the form of a preliminary sale and purchase agreement.

On account of the fact that this agreement is a private agreement, the parties arefree to negotiate the terms and conditions. Such an agreement can take any form,being written in any language.

Because th is agreement is based on the common wish and on the agreement of both part ies on i ts content , this f i rs t agreement wil l b ind the part ies and the t ransfer of ownership . Moreover, th is agreement is entered into between the part ies in order to f ix a l l the terms and condi t ions re lat ing to the purchaseo f t he asse t be fo re the pu rchaser ob ta ins the necessary fund ing o r admi -n i s t ra t ive author izat ions.

Most of the time, this agreement contains a penalty clause in order to prevent anyfault of the purchaser, and resolutive and/or suspensive conditions in case, for instance, the purchaser does not receive the funding or administrative authorization.

2. Notarial Deed of Sale and Purchase

The transfer of ownership and enforceability against third parties is given by thenotarial deed. Therefore, after the private agreement, the notarial deed shall havetaken place in order to give to the private agreement, the enforceability to third parties necessary for the purchase of the asset.

It is important to note that the transfer of t i t le has to be recorded with the mortgage register. In practice, the purchaser will pay the purchase price, duties and taxes to the notary, who will ensure that the necessary duties are paid and release the amount to the seller.

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I I . LEASE AGREEMENTS

The Luxembourg Civi l Code provides for that a lease agreement can be verbal. However, for reasons of proof, all lease agreements are in practice in writing.The most common kinds of leases are the common leases and the commercial leases.

1. Common Leases

The Luxembourg Civil Code mentions some special leases, which undertake specialrules in the Luxembourg Civil Code. Therefore, any lease which is not qualified asa commercial, residential or farm lease, is considered as a “common lease” andis subject to the general provisions of the Civil Code.

Common leases can be fixed for a determined (maximum 99 years) or undeterminedperiod.

Leases with a determined period shall terminate at the end of the term, except forspecific provisions mentioned in the agreement, such as mutual agreement.

The Luxembourg Civi l Code provides for that unless otherwise stated in the agreement, leases with an undetermined period may be terminated by either partyaccording to a six-month notice period.

The price given for leases is a rent, generally paid to the lender each month.

2. Commercial Leases

A commercial lease may be used for a commercial activity. The law of August, 10th,1915 relating to commercial companies and other special laws lists people consi-dered as having a commercial activity. These kinds of agreements are governedby the general civil law.

In practice, parties enter into a commercial lease for a “duration of 3-6-9 years”.This means that the f irst term of the commercial lease is three years, but theagreement can automatically be renewed for three years when not provided for inthe contract, respectively for three new years after termination of the period ofsix years, if no party asks for the termination of the contract before the expirationof the terms.

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TAX ADVANTAGES

According to the “lex re i s i tæ” princip le , i .e . the law of the land where the assetis located , income der ived f rom real es ta te is general ly taxed in the countrywhere the real estate is located.

The regis trat ion duty in case of an asset deal amounts to 6%, and a munic ipalsurcharge o f 50% is added on the amount o f the reg is t ra t ion dut ies due when the asset is located in Luxembourg-Ci ty.

I f the real estate is held through a company, the sale of the shares is , accordingto the ordinary rules of double taxation treaties, taxed in the country of residenceof the sel ler.

A contr ibut ion of real estate s i tuated in Luxembourg to a corporat ion or partner-ship benef i ts f rom reduced registrat ion dut ies and reduced t ranscr ipt ion dut iesprovided that such a contr ibut ion is remunerated by shares.

Dividends and gains f rom quali fy ing shareholdings in property companies areusual ly also exempt under the Luxembourg domestic part icipat ion exemption.In addi t ion , there is normal ly no net worth tax due on d i rect ly held fore ign realestate or sharehold ings in fore ign property companies as a resul t of tax t reat iesand domest ic law exempt ions.

I f the income is not exempt under a tax t reaty, a l l investment expenses (propertytax , in terest on loans, etc . ) and costs associated wi th real estate managementare deduct ib le f rom taxable income.

A. Income Tax

Luxembourg companies or non-residents acting through a Luxembourg permanentestablishment are l iable to Luxembourg corporate income tax (including municipalbusiness tax) at the combined rate of 29.22% (for companies or Luxembourg permanent establishments in Luxembourg-City) on any rental income or gains derivedfrom real estate properties located in the Grand-Duchy of Luxembourg.

B. Property Tax

Property tax is charged annually by municipalit ies at varying rates which may notexceed 7.5% of the unitary value of the property (depending on the location and nature of the property).

C. Net Worth Tax

Real estate properties located in the Grand-Duchy of Luxembourg held by a Luxembourg company or by a non-resident through a Luxembourg permanent establ ishment are subject to annual net worth tax levied at 0.5% with a minimumamount to be paid under certain circumstances. Real estate properties abroad areexcluded from the net worth tax basis of Luxembourg companies/Luxembourg permanent establishments.

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WHAT WE O F F ER YOU THANKS TO OUR EXPER I ENCE I N R EA L E S TATEFELTEN & Associés provides a comprehensive range of services to both domesticand internat ional real estate c l ients such as pr ivate and inst i tut ional investors ,publ ic inst i tut ions , real estate promoters and managers .

Our law f i rm has deve loped networks and re la t ionsh ips wi th key p layers and par t ies no t on ly in the Grand-Duchy o f Luxembourg , bu t a lso in Europe andaround the wor ld .

Thanks to our exper ience we adv ise our c l ien ts on soph is t ica ted rea l es ta tet ransact ions , proper ty management and p lanning , as wel l as construct ion andenvironmental issues.

We can be of ass is tance regard ing any property-re lated issues inc luding debtf inancing , property l i t igat ion , property t ransact ions , s t ructur ing of investmentvehic les , e tc .

Furthermore, we share knowledge and exper ience to negot iate favourable realestate t ransact ions, draf t the contractual documentat ion, obta in governmentalapproval o f a pending t ransact ion , develop tax-opt imised structures or secureproject f inancing, among others .

We ensure any t ransact ion is managed by h ighly qual i f ied profess ionals and aresensi t ive to the t ime and cost concerns for our c l ients .

Through our Dispute Resolution/Litigation Department, we also assist and representour c l ients in case d isputes ar ise f rom real estate t ransact ions.

If you have any question or would l ike to obtain further information do not hesitateto contact our property team:

Me Bernard FELTEN, FELTEN & ASSOCIES, Partnerbfe l ten@fel ten lawyers .com - h t tp : / /www.fe l ten lawyers .com/team/fe l ten-bernard/

Me Figen GÖKCE, FELTEN & ASSOCIES, Senior Associatefgokce@fel ten lawyers .com - h t tp : / /www.fe l ten lawyers .com/team/gokce-f igen/

M. Frédéric COLLOT, FELTEN & ASSOCIES, Senior Advisorfco l lo t@fe l ten lawyers .com - h t tp : / /www.fe l ten lawyers .com/team/col lo t - f reder ic /

Me Isabelle GIRAULT, FELTEN & ASSOCIES, Partner - L i t igat ion Departmentig i rau l t@fe l ten lawyers .com - h t tp : / /www.fe l ten lawyers .com/team/girau l t -schanen- isabel le /

DISCLAIMERThis document is for information purposes only and does not constitute nor can be relied upon as bindinglegal advice. Before implementing a transaction on the basis of the information included, it is highly recom-mended to seek detailed professional advice.

( INDUSTRIAL, RETAIL OR OFFICE PROPERTIES)

ABOUTFELTEN & As soc i é sWith more than 20 years of service, FELTEN & Associés isa full service corporate law firm located in Luxembourg,one of the most important banking centres worldwide. FELTEN & Associés is a human-sized firm with a multilin-gual team in which partners and associate lawyers withsubstantial experience, tax experts, paralegal assistantsand officers co-operate closely.The firm provides independent, legal and tax services including litigation to private and institutional clients indaily operations as well as in complex business transac-tions, both domestic and international, thanks to the resources of international co-operation networks.We have in-depth experience in the following key areas:• Banking & Finance;• Corporate and Commercial Law;• Dispute Resolution;• Employment and Social Security Law;• IP;• Real Estate;• Tax.Our leitmotivs are Availability - Competence - Long-TermRelationship - Responsiveness.For further information on FELTEN & Associés, visitwww.feltenlawyers.com

LUXEMBOURG: 2 rue Jean-Pierre Brasseur, L-1258 Luxembourg. Tel.: +352 45 77 45-1 - Fax: +352 45 75 05 - bfelten@feltenlawyers.com

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