Legal Mortgage (IP Security)
Definition
A legal mortgage over intellectual property is the strongest form of security a lender can take over an intangible asset, in which legal title to the IP is transferred to the lender as collateral, subject to the borrower's right to have it returned once the loan is repaid. In practice a legal mortgage ip security is created by an assignment by way of security, almost always paired with a licence-back so the borrower can continue to exploit the very patents, trade marks or registered designs it has charged. It ranks above a fixed charge, which in turn ranks above a floating charge, and it gives the lender the clearest route to sell or license the asset on default. For a lender, this priority matters because insolvency law pays fixed security first, and a legal mortgage delivers the tightest control over an identifiable, separable asset. For a borrower, it is the price of accessing IP-backed lending on the best terms: registered rights carry more weight than unregistered ones, and the lender will require clean, unencumbered title before advancing funds. As an example, a UK software company borrowing under NatWest's High Growth IP Loan (£250k to £10m, up to around 50% of appraised IP value) would grant security over its core IP, with the appraisal set by an independent valuer such as Inngot and the IP revalued annually. The charge must be registered at Companies House within 21 days under section 859A of the Companies Act 2006, and also recorded at the UK Intellectual Property Office, or it is void against a liquidator or administrator. Because the loan is a fallback behind conventional security and is serviced primarily from operating cash flow, the legal mortgage is realised only if the business defaults and the asset must be sold on an orderly-disposal basis.
Complementary Terms
Concepts that frequently appear alongside Legal Mortgage (IP Security) in practice.
An assignment by way of security is the legal mechanism used to create a legal mortgage over intellectual property, whereby the borrower transfers title to the IP to the lender as collateral while retaining an equitable right to have it reassigned once the debt is repaid. Unlike an outright assignment, an assignment by way of security is conditional and reversible, and it is almost always accompanied by a licence-back so the borrower can carry on using the assigned patents, trade marks or designs in the ordinary course of business.
A licence-back is a licence granted by a lender back to a borrower that has assigned its intellectual property as security, permitting the borrower to continue using that IP in its business for the life of the loan. A licence-back arrangement is the practical companion to a legal mortgage or an assignment by way of security: the borrower transfers title to the lender as collateral, and the lender immediately licences the rights back so day-to-day operations, manufacturing and sales carry on uninterrupted.
A security interest over a specific, identified asset that prevents the borrower from dealing with or disposing of the charged asset without the lender's consent. Fixed charges attach to assets such as land, buildings, specific plant and equipment, or identified intellectual property rights.
A form of security interest, primarily used in UK and Commonwealth jurisdictions, that attaches to a class of present and future assets of a company (such as stock, receivables, or general business assets) without preventing the company from dealing with those assets in the ordinary course of business. A floating charge 'crystallises' into a fixed charge upon the occurrence of a specified event such as default, appointment of a receiver, or commencement of winding up.
Security priority ranking is the order in which competing creditors are paid from a charged asset when a borrower defaults or becomes insolvent. In IP-backed lending it determines how much a lender can realistically recover from intangible collateral, and so it directly shapes the loan-to-value the lender is prepared to offer.
Section 859A of the Companies Act 2006 is the provision that requires most charges created by a company to be registered at Companies House within 21 days of creation, failing which the security is void against a liquidator, an administrator and any creditor of the company. In IP-backed lending, section 859a charge registration is a hard deadline that no lender can afford to miss: a legal mortgage, fixed charge or floating charge over intellectual property that is not registered in time still binds the borrower but collapses on insolvency, precisely when the lender most needs it.
A security interest granted by a borrower over its intellectual property assets — including patents, trademarks, copyrights, and trade secrets — as collateral for a loan or other financial obligation. IP charges must typically be registered at both the relevant IP registry (such as the UK Intellectual Property Office or USPTO) and the general security interests registry (Companies House, UCC, or PPSA).
A form of asset-backed lending in which intellectual property assets — patents, trademarks, copyrights, and proprietary software — serve as collateral for a loan facility. IP-backed lending enables knowledge-intensive businesses to access non-dilutive growth capital by pledging their intangible assets rather than physical property or equipment.
Related FAQ
What is a legal mortgage over intellectual property?
A legal mortgage over IP transfers legal title of the rights to the lender as security, with a licence-back so you keep using them; it is the strongest form of IP security and is discharged when the loan is repaid.
Read full answer →Do I lose ownership of my IP if I use it as collateral?
No. Using IP as collateral grants the lender a security interest, not permanent ownership; you keep using the rights and get clear title back on repayment. Ownership only transfers if you default and the lender enforces.
Read full answer →What happens to my IP if I default on an IP-backed loan?
On default the lender enforces its registered security, which can mean selling, licensing or assigning the charged IP to recover the debt. How far it can go depends on the charge type and its priority ranking.
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