Intellectual property is now one of the most valuable forms of collateral in the UK economy. For technology companies, life science businesses, and brand‑driven enterprises, patents, trademarks, software, and copyrights often exceed physical assets in value.
As a result, lenders, investors, and alternative finance providers increasingly require security over intellectual property when advancing debt. However, taking security over intellectual property is legally complex and materially different from taking a charge over land or machinery.
This guide explains — in plain English — how legal mortgages, fixed charges, and floating charges over intellectual property work under English law, how they are perfected, and how lenders and borrowers can avoid costly mistakes.
What Is Security Over Intellectual Property?
Intellectual property (IP) is classified as intangible personal property. Because it cannot be physically possessed, security over IP is governed by:
- Contract law
- The Law of Property Act 1925
- IP‑specific legislation such as the Patents Act 1977
- Insolvency and Companies Act registration regimes
Security can be taken in two principal ways:
- Legal mortgages (by assignment of title)
- Charges (fixed or floating)
Each carries different legal and commercial consequences.
Legal Mortgages Over Intellectual Property (Assignment by Way of Security)
A legal mortgage is the strongest form of IP security available under English law.
How a Legal Mortgage Works
- The borrower assigns legal title to the IP (e.g. a patent or trademark) to the lender
- The assignment is by way of security, not an outright sale
- Once the loan is repaid, the IP is re‑assigned to the borrower
From a lender’s perspective, this provides maximum control and enforcement certainty.
Section 136 Law of Property Act 1925 – Why It Matters
To create a true legal assignment, the security must comply with Section 136 LPA 1925. This allows the lender to:
- Enforce rights directly
- Sue infringers in its own name
- Avoid procedural risk during insolvency
To be valid, the assignment must:
- Transfer benefit only, not obligations
- Be absolute, not conditional
- Cover clearly identifiable rights
- Be in writing and signed by the assignor
- Be notified in writing to relevant third parties (e.g. licensees or the IPO)
Failure on any point may reduce the mortgage to an equitable assignment only.
The Commercial Reality: Licence‑Back Arrangements
A practical issue arises immediately:
If the lender owns the IP, how does the borrower continue trading?
The solution is a licence‑back:
- The lender grants the borrower an exclusive licence
- The borrower retains full operational use
- The lender preserves enforcement rights
Poorly drafted licence‑backs are one of the most common weaknesses in IP‑secured lending.
Fixed Charges Over Intellectual Property
A fixed charge creates a legal encumbrance without transferring ownership.
Key Characteristics
- Borrower remains the legal owner
- Lender gains enforcement rights on default
- Borrower cannot dispose of the IP without consent
Fixed charges are frequently used where title transfer would disrupt licensing, revenue, or regulatory compliance.
“Belt and Braces” Protection: Assignments in Escrow
Sophisticated lenders often require:
- A pre‑signed assignment
- Held in escrow
- Activated only on default
This enables rapid conversion of the charge into a legal mortgage if enforcement becomes necessary.
Floating Charges Over IP Portfolios
A floating charge applies to a class of assets — typically:
- Unregistered IP
- Future patents or software
- Trading names and goodwill
Advantages for Borrowers
- Freedom to license, develop, and sell IP
- Minimal operational interference
- Suitable for venture or growth finance
Risks for Lenders
- Ranks behind fixed charges in insolvency
- Subject to preferential creditors
- Assets may be diluted before crystallisation
Floating charges are rarely sufficient as sole security for IP‑heavy lending.
Registration & Perfection: Where Most Deals Fail
Creating security is not enough. It must be perfected.
Companies House Registration
All UK company charges must be registered within 21 days.
- Form MR01 – where a written instrument exists
- Failure = security void against liquidators and creditors
Intellectual Property Office (IPO) Registration
IPO registration is critical for:
- Patents
- Registered trademarks
- Registered designs
It protects lenders against subsequent good‑faith purchasers.
Due Diligence for IP‑Backed Lending
Before accepting IP as collateral, lenders should confirm:
- Ownership is correctly registered
- Renewal fees are up to date
- No prior fixed charges exist
- No exclusive licences dilute value
- Chain of title is complete
This is where specialist IP legal review is essential.
Why Specialist Legal Advice Matters
IP‑backed finance sits at the intersection of commercial law, IP law, and insolvency risk. A single drafting or registration error can reduce a secured lender to unsecured status overnight.
For borrowers, poorly structured security can block licensing, fundraising, or exit transactions.
If you would like to discuss this further, please feel free to get in touch.
Frequently Asked Questions / Questions & Answers
Can intellectual property be used as collateral for a loan in the UK?
Yes. Under English law, intellectual property can be used as collateral for debt financing through legal mortgages, fixed charges, or floating charges. Common assets used include patents, trademarks, software, copyrights, and registered designs. However, IP security must be carefully structured and properly registered to be enforceable against third parties and insolvency practitioners.
What is the difference between a legal mortgage and a fixed charge over IP?
A legal mortgage over intellectual property involves the transfer of legal title to the lender by way of security, with a right of re‑assignment once the debt is repaid. It provides the highest level of protection.
A fixed charge, by contrast, does not transfer ownership. The borrower remains the legal owner, but the lender gains enforcement rights and control restrictions. Fixed charges are commonly used where title transfer would disrupt licensing or commercial operations.
Do lenders need to register security over intellectual property?
Yes. Registration is critical.
- Companies House: All charges created by UK companies must be registered within 21 days.
- Intellectual Property Office (IPO): Security over registered IP rights (such as patents and trademarks) should also be recorded at the IPO.
Failure to register can render the security void against a liquidator or third‑party purchaser, even if the loan agreement itself is valid.
Can a borrower continue using their IP after granting a legal mortgage?
Yes — but only if a licence‑back arrangement is put in place.
In a legal mortgage, the lender becomes the legal owner of the IP. To allow the borrower to continue trading, the lender typically grants an exclusive licence back to the borrower. Poorly drafted licence‑backs are a common risk area and can significantly undermine enforcement or valuation.
What happens to IP security if the borrower becomes insolvent?
In insolvency, priority generally ranks as follows:
- Legal mortgages and fixed charges
- Insolvency expenses
- Preferential creditors
- Floating charge holders
- Unsecured creditors
This is why lenders strongly prefer legal mortgages or fixed charges over IP rather than relying solely on floating charges.
Can future or unregistered IP be used as security?
Yes, but typically only under a floating charge or an after‑acquired property clause. This may include:
- Future patents or software
- Unregistered copyrights
- Trade secrets and know‑how
However, floating charges provide weaker protection and lower insolvency priority, making them less attractive as standalone security.
Is IPO registration mandatory for IP security?
While not always strictly mandatory, IPO registration is strongly recommended for registered IP rights. It protects lenders against subsequent good‑faith purchasers who may otherwise take the IP free of the charge or mortgage.
From a risk perspective, unregistered IP security is rarely acceptable to sophisticated lenders.
What due diligence should lenders carry out before accepting IP as collateral?
Lenders should confirm:
- Clear ownership and chain of title
- No prior fixed charges or mortgages
- No exclusive licences that restrict enforcement
- Renewal fees are paid and IP is in force
- The IP has genuine commercial value
Specialist IP legal due diligence is essential before relying on IP‑backed security.
Is IP‑backed lending suitable for startups and scale‑ups?
Yes. IP‑backed lending is increasingly used by:
- Technology startups
- Life sciences and biotech companies
- SaaS and software businesses
- Brand‑driven consumer companies
However, early‑stage businesses must ensure that security arrangements do not block future fundraising, licensing, or exit transactions.
Do I need a specialist solicitor for IP‑secured finance?
In practice, yes. IP‑backed finance involves overlapping areas of commercial law, intellectual property law, and insolvency law. General loan documentation is often insufficient and can leave lenders exposed or borrowers over‑restricted.
Specialist advice ensures the security is enforceable, properly registered, and commercially workable.
