Changes to Louisiana Law on the Pledge of a Lessor’s Rights in a Lease of an Immovable and its Rents

On January 1, 2015, changes to Louisiana law (both the Civil Code and the Revised Statutes) relating to pledges became effective.  Under the revised law, the “exhaustive” list of things that may be pledged are:

  • “A movable that is not susceptible of encumbrance by security interest” such as property insurance payments;
  • “The lessor’s rights in the lease of an immovable and its rents”;
  • “Things made susceptible of pledge by law,” which includes mineral lease bonus payments and other payments classified as rent under the Mineral Code. La. Civ. Code art. 3142, 3172.

The following requirements are worth noting with regard to the pledge of a lessor’s rights in a lease of an immovable and its rents:

  • Written Contract: A written contract is required and must (a) “state precisely the nature and situation of the immovable” and (b) “state the amount of the secured obligation or the maximum amount of the secured obligations that may be outstanding from time to time.”  La. Civ. Code art. 3168.
    • The description requirements of the immovable are identical to the corresponding requirements in a mortgage. La. Civ. Code art. 3168 comment (c).
    • The pledge can be a separate document or contained in an act of mortgage of the immovable. La. Civ. Code art. 3170.
    • The written contract is not required to be witnessed or notarized and the pledgee is not required to sign the contract in order to be effective. However, it is important to remember that the written contract will be self-proving only if it is an authentic act. La. Civ. Code art. 1833.
  • Recordation in Mortgage Records: To be effective against third persons, the written contract establishing the pledge must be recorded in the mortgage records of the parish in which the immovable is located. La. Civ. Code art. 3169, 3346.
    • Before January 1, 2015, a pledge that was a separate act (i.e., not part of a mortgage) was recorded in the conveyance records.
  • Time Limits of Effectiveness: The duration of the effectiveness of the recordation of a pledge is the same as for a mortgage. La. Civ. Code art. 3357-3365.
  • Subleases: The requirements that apply to the pledge of a lessor’s rights in a lease of an immovable and its rents similarly apply to a sublessor’s rights in the sublease of an immovable and its rents. La. Civ. Code art. 3168 comment (d).
  • Effectiveness as to Lessees: A pledge is effective as to a lessee from the point of time the lessee receives written notice of the pledge (regardless of whether or when the pledge is recorded). La. Civ. Code art. 3169. [It is unclear whether a pledge is effective against a lessee upon recordation of the pledge if written notice of the pledge has not yet been given to the lessee.]

The above highlights only select changes and requirements for the pledge of the lessor’s rights in the lease of an immovable and its rents.  But remember to review all applicable law when entering into a pledge.

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