Chattel mortgage for pharmacies: what it is, how it works and what advantages it offers to finance a pharmacy

In this article, from JLA Notarios, the Notaries Luis Alberto Álvarez Moreno and Juan Madridejos Velasco, as notaries specialising in pharmacy sales and mortgages, want to summarise the most important issues regarding chattel mortgages on pharmacies and answer some of the questions that our clients frequently ask us in these procedures.

Regarding the transfer of pharmacies, both the chattel mortgage and the pledge without delivery, regulated by the Law of 16 December 1954 on Chattel Mortgage and Pledge without Delivery of Possession, offer a secure and perfectly legal way to guarantee loans in the pharmaceutical sector. Its current configuration, reinforced by Law 41/2007, has allowed this mechanism to become an essential instrument for those wishing to acquire, expand or modernise a pharmacy.

The chattel mortgage is a real guarantee that applies to movable goods —not to real estate— but without the debtor losing possession. Its purpose is the same as that of the real estate mortgage: to ensure the fulfilment of a payment obligation, granting the creditor a preferential right in case of default.

According to article 12 of the 1954 Law, among other goods, commercial establishments can be mortgaged. This category includes the pharmacy office, as a business endowed with structure, clientele, and goodwill value. In practice, the pharmacist who buys a pharmacy can offer the establishment itself as collateral for the loan intended for its acquisition.

A chattel mortgage on a pharmacy includes different elements:

• the right of lease or ownership of the premises,
• the furniture and fittings,
• the stock,
• the trade name and trademarks,
• and the goodwill, understood as the clientele and reputation of the business.

The notarial and registry doctrine —Faus (Clases de hipotecas mobiliarias), De la Puente (Drets Reals IV)— expressly recognises the validity of this figure, emphasising that the pharmaceutical establishment meets all the requirements of identification and economic value demanded by law.

In Catalonia, this possibility fits with Ley 31/1991, de Farmacia, and Decreto 40/1992, which regulate the authorisation, transfer and closure of pharmacies, always under administrative control.

The Law on Chattel Mortgage and Pledge without Displacement of 1954, amended by Law 41/2007, remains the reference regulation.
It establishes that the chattel mortgage:

• must be formalised in a public deed before a notary;
• requires registration in the Registry of Movable Property, with a constitutive character of the right;
• and can only be placed on identifiable and fully owned goods.

In the case of pharmacies, article 19 of the Law on Chattel Mortgage and Pledge without Displacement requires that the holder be the owner of the premises or a tenant with the power of assignment or transfer, as this legal availability is essential for the effectiveness of the mortgage. Furthermore, it is necessary that this lease has a duration equal to or greater than the duration of the loan that allows the purchase of the pharmacy and that is guaranteed by a chattel mortgage or pledge on the pharmacy.

Added to this are the regional regulations: in Catalonia, Law 31/1991 establishes that only individual pharmacists (article 3) can be holders of pharmacies, which excludes commercial or professional companies. Consequently, only the pharmacist holder can mortgage their office as a commercial establishment or pledge their administrative authorisation.

Article 13 of the 1954 Act requires that every chattel mortgage be recorded in a public deed, with a precise description of the goods, identification of creditor and debtor, loan amount, and address for notifications.

In notarial practice, the chattel mortgage deed for a pharmacy includes the health authorisation, the title of ownership or lease, the inventory of furniture, and the reference to the goodwill as an integral element of the guarantee.

The right does not arise until its registration in the Registry of Movable Property.
The registration is constitutive, and only through it does the creditor acquire the right of pursuit and priority against third parties.

In this sense, the registry publicity serves a function of transparency and protection of financial transactions.

When the transaction combines a chattel mortgage and a pledge without transfer, it is essential that both are coordinated.

The Notary must expressly identify the licence subject to the pledge and reflect it in the deed, ensuring its compatibility with the main mortgage.

Let us imagine that Doña Carmen, a registered pharmacist, acquires a pharmacy in Tarragona for 900,000 euros. Doña Carmen has 250,000 euros and is short of 650,000 euros.

Therefore, to finance the purchase, the bank grants her a loan of 650,000 euros for ten years.

As security, two complementary notarial operations are formalised:

1. Chattel mortgage on the commercial establishment: covering furniture, installations, goodwill, lease rights, and trade name.
2. Pledge without delivery on the pharmacy licence, an essential element of the business.

Both deeds are registered in the Movable Property Registry.
During the term of the loan, the pharmacist continues to operate the business.

If she defaults on the payment, the bank may enforce the mortgage and the pledge, taking possession of the establishment, although the new owner must be a pharmacist qualified and authorised by the Administration.

The Catalan regulations introduce relevant peculiarities.

Law 31/1991 and Decree 40/1992 establish that only individual pharmacists can be holders, and that any transfer, relocation or closure requires prior authorisation from the Departament de Salut.

• Allows obtaining financing without mortgaging real estate.
• Takes advantage of the economic value of the business itself as collateral.
• Maintains the possession and operation of the pharmacy.
• Facilitates refinancing or credit extension under advantageous conditions.

• A real guarantee is obtained, registered and enforceable judicially or notarially.
• Registry publicity and priority over other creditors.
• Notarial supervision that ensures the formal and material validity of the operation.
• Greater security against defaults or unauthorised transfers.

The creation of a chattel mortgage or a pledge without displacement is subject to the Tax on Documented Legal Acts (IAJD), in the form of notarial documents. The tax rate varies according to the autonomous community, but usually ranges between 0.5% and 1.5% on the mortgage liability (amount guaranteed by principal, interest and costs).

In Catalonia, the AJD rate to be paid on pharmacy chattel mortgages is 1.5% of the mortgage liability.

Unlike real estate mortgages, this operation is not subject to Transfer Tax, since there is no transfer of ownership, but rather the creation of a guarantee. The taxpayer is generally the lender or mortgage creditor, unless otherwise agreed in accordance with article 29 of the Revised Text of the ITP and AJD Law.

From the point of view of Personal Income Tax or Corporate Tax, the loan interest is a deductible expense for the pharmacist owner, provided that the credit is used for the acquisition or improvement of the pharmacy premises. Notarial and registry expenses, as well as the IAJD paid, can also be considered deductible expenses in the corresponding financial year, as part of financing costs.

In case of cancellation or refinancing, the cancellation deed is exempt from taxation, in accordance with article 45.I.B.18 of the TRITPAJD, and only incurs minimal notarial and registry costs.

The Notary plays an essential role throughout the entire process of buying and financing pharmacies.

Their function goes beyond drafting the deed: they advise, verify the capacity and legitimacy of the pharmacist, oversee the legality of the lease agreement, and warn about the tax and registration consequences.

Furthermore, they ensure that all specific requirements applicable to the transfer of pharmacies are met, which demands specific knowledge of pharmacy regulations.

• Verification that the lease allows assignment or transfer.
• Proof that the assets are not previously mortgaged or pledged.
• Coordination with the Registry of Movable Property to ensure registration.
• Warnings about the Stamp Duty (AJD).

Notarial intervention, ultimately, offers legal certainty and transparency to both parties.

The pharmacy regulations are complex and specific and require thorough knowledge of the state and regional legislation on the sale and financing of pharmacies.

At JLA Notarios, both Notaries Luis Alberto Álvarez Moreno and Juan Madridejos Velasco have specialised knowledge of the pharmaceutical sector. In addition, the JLA Notarios team includes clerks specialised in advising on and processing pharmacy transfers.

If you want to process your pharmacy transfer and mortgage with JLA Notarios, the only requirement is that you attend in person to sign at our mortgage notary office on Avenida Diagonal in Barcelona. Whenever you come to sign at JLA Notarios, we can handle any transaction related to your pharmacy, whether it is located in Barcelona, Catalonia or anywhere else in Spain.