What is a legal mortgage over intellectual property?

Full Explanation

A legal mortgage over intellectual property — also called an assignment by way of security — is the strongest way a lender can take IP as collateral. It works by transferring the legal title of the rights to the lender for the duration of the loan, coupled with a licence-back that lets the borrower carry on using and commercialising the IP exactly as before. In practice the business operates normally; the lender simply holds title as security until the debt is cleared, at which point the rights are reassigned to the borrower. It is a stronger security than a fixed charge, which itself ranks above a floating charge. Why would a lender prefer this structure? Because on default the lender already holds legal title, so it can move to sell or licence the IP without first having to enforce and perfect a charge. That directness is valuable when recovery speed affects how much is realised. The licence-back is the mechanism that makes the arrangement workable for the borrower: you retain full operational use of your patents, trade marks or software throughout, and nothing changes in the way you run the company day to day. Like any charge, a legal mortgage must be registered at Companies House within 21 days under section 859A of the Companies Act 2006, or it is void against a liquidator or administrator. For IP it should also be recorded at the UK Intellectual Property Office so the security appears on the public register. This structure sits at the top of the security hierarchy that specialist and high-street lenders use — a legal mortgage or assignment by way of security above a fixed charge above a floating charge — and it is most often seen where the IP is central to the deal and the lender wants maximum control on default. For a founder or adviser, the reassuring point is that a legal mortgage does not stop you using your IP — the licence-back preserves that, and title returns to you on repayment. The practical step before agreeing to one is to confirm your title is clean and your rights are registered and in force, because a lender will only take a legal mortgage over IP it is confident it genuinely owns. Assembling that title evidence up front is exactly what a collateral pack is for.

Related Glossary Terms

Related Questions