Commercial property advice in Wimbledon, South West London, Epsom and Surrey
What is property finance?
Property finance describes a transaction where a person secures a loan against a residential or commercial property. Secured lending is an essential component of the property market, enabling people to acquire assets or make investments when they do not have the full cash resources to do so. Property values and a relatively stable market in the UK underpin this kind of lending.
Legal advice is essential for these transactions.
- Legal due diligence will be carried out on the property; documentation needs to be collated and reviewed for this purpose.
- Loan and mortgage terms are complex and should be explained to the borrower. A lender may even insist that the borrower’s solicitor confirms that they have given that advice.
- The lender’s solicitor will ensure that the necessary paperwork is signed so that the lender achieves the agreed protection.
- Solicitors will also handle completion of the transaction, ensuring that the security is granted simultaneously with release of the funds.
After completion, the mortgage needs to be registered: at Companies House if the borrower is a company; and at Land Registry in any case. A solicitor will either deal with the registrations or provide comfort to the other party’s solicitor by giving professional undertakings.
On standard residential and commercial mortgages, one solicitor can act for both lender and borrower. In other cases, it is likely the parties will be separately represented. In either scenario, our property finance solicitors are qualified to assist.
What types of property finance can we assist with?
We can deal with anything from a standard residential mortgage for a homebuyer or a buy-to-let investment, to a commercial mortgage or development finance transaction.
An experienced mortgage broker is best placed to advise you on the different types of loan and their respective finance terms and requirements. Once a loan offered has been issued, we can handle the legal processes for the following:
Residential mortgages and buy-to-let
A residential mortgage is simply a loan secured over a residential property. Much of the work of our Residential Property team falls into this category, combined with a purchase or as a refinance.
Buy-to-let covers where the property is let out to residential tenants and you hold the property as an investment. The tenancy arrangements and legal compliance will be delved into, but we know what boxes must be ticked.
A commercial mortgage usually represents a medium to long-term loan to a business, as an owner-occupier or as an investor. The loan will be secured over commercial property such as offices, shops, hospitality premises or industrial units. A commercial loan can also be secured over residential property (if multi-let or where the borrower is a limited company) and mixed use property.
We will help you satisfy the bank’s requirements and complete the transaction for you.
A development loan has a shorter term, often up to two years. The purpose is to provide the funding to develop or redevelop a property, such as converting a house into flats or building a housing estate.
The finance documentation and due diligence will be more detailed, but our Commercial Property team can support you through the process.
A bridging loan is short-term finance used to ‘bridge the gap’ until funds are released from another transaction, for example, the completion of a standard mortgage or the sale of another property. Bridging loans can be useful for home-movers, property developers or investors looking to release funds quickly, but at a cost.
Whether the property is residential or commercial will determine which of our property teams can assist.
We often act for parents wanting to help a child buy a property but who are not ready to give an advance on their inheritance or who want to ringfence the money from the child’s spouse or partner. Usually this involves a simpler form of loan agreement and a basic mortgage registered against the property.
How can Peacock & Co help?
Our extensive experience in property finance transactions ranges from the simple to the complex. Our property finance solicitors can guide you through the legal requirements and ensure your position is protected, whether you are borrower or lender. We are on the panels of many lenders and for standard mortgage transactions, we can act for both lender and borrower, saving cost.
On the development side, where acting for the borrower, the commercial property team strive to provide the lender’s solicitor with an organised pack of documents to review and work with them to get the deal done. We are familiar with dealing with multiple lenders on development transactions, including where the junior lender holds equity in the project, where property and corporate law meet. We also have experience in acting for property investment platforms, lending a pool of invested funds to a developer to top up the senior debt, secured by second charge and guarantees.
Here are some commonly asked questions we receive about property finance and secured lending:
Primarily, the bank will take a mortgage over the property itself. A mortgage is the transfer of ownership of the property as security for the borrower’s obligations, which will be transferred back once those obligations have been discharged. The lender will not take possession of the property when the mortgage is granted, but if the borrower defaults, the lender may exercise a power of sale or repossess the property or appoint a receiver to do so.
If the borrower is a company, the lender may seek additional security. For example, a bank may require the borrower to provide a debenture, which is essentially a charge over all its assets: a fixed charge over those assets that are not disposed of in the ordinary course of business, and a floating charge over the rest. In the event of default, a debenture typically allows the lender to appoint a receiver to sell assets or place the company into administration.
A bank may also require directors or shareholders to give personal guarantees of the borrower’s obligations. The individuals may be expected to take independent legal advice on the terms of the guarantee and the implications of giving it, to avoid any later argument that they have been pressured into signing it. We can provide such independent legal advice.
From the legal perspective, the main differences are that, in development finance:
- The lender’s due diligence will need to confirm there is nothing on the property’s title or in search results that might prevent or inhibit the development and require that any risks are mitigated.
- There will be additional conditions precedent to be satisfied. For example, the lender will require valuations of the current value and gross development value, a development appraisal and budget, and a surveyor’s report to verify the projected development costs.
- The funds for the development costs and professional fees will usually be released in stages. This may involve the lender appointing its own surveyor to monitor the works. The surveyor will consider whether the progress of the development works reflects the costs and fees for which the developer seeks a drawdown of funds and approve the drawdown accordingly (or not).
- The lender may require additional security, such as guarantees from the developer to cover cost overruns and collateral warranties from the building contractor and any consultants or sub-contractors. The lender may also require the rights to take over and complete the development if the borrower is in default: these are called ‘step-in’ rights and provide an alternative remedy to the lender appointing a receiver to sell an incomplete development.
Development finance may be taken out alongside a mortgage to acquire the development site, from the same lender or another lender. In the latter case, one lender will hold a first charge over the property and the other will hold a second charge. The lenders will usually enter into an intercreditor deed, such as a deed of priority, to govern who is entitled to monies first on a disposal of the property.
The term ‘buy-to-let’ is typically used to describe a transaction in which a person acquires or refinances a property that is, or will be, subject to residential tenancies. A buy-to-let mortgage is used to finance such a residential property transaction.
However, commercial mortgages are used to finance the purchase of, or to refinance, properties that are, or will be, subject to commercial tenancies, including mixed use properties such as a shop with flats above. Commercial mortgages are sometimes used where the borrower is a company, even if the property only has residential tenants in it.
Once you have acquired a commercial property, our team can assist with the grant of leases and property management requirements.