The Welsh Government has recently concluded a consultation in relation to regulatory reform of Registered Social Landlords (RSLs) in Wales. Changes are therefore in the pipeline to put Welsh RSLs on the same regulatory footing as their English counterparts. This could potentially mean greater access for Welsh RSLs to private finance and now is the time to ‘get your house in order’ and to get your property portfolio private finance ready.
With this in mind, we have put together a series of notes which we will be publishing over the next coming weeks to help you on your way and identify common problems which arise during refinancing transactions with private financial institutions.
In this first part of the series, we give a brief guide on how to identify suitable properties for security and which properties to avoid if possible.
1. Initial title review
At the outset of any proposed refinancing, it is worthwhile carrying out an initial high level review of the legal title of the properties being considered for security and asking yourself the following questions:
- Is it registered or unregistered?
- If it is registered, is it registered to the RSL?
- If it is unregistered, do you have the title deeds and is there good title?
- If it is registered what is the class of title – possessory title or title absolute?
- Is the property charged to a third party lender (other than Welsh Ministers)?
- Are there any restrictions on the legal title that will require third party consent to the legal charge?
- Is the title freehold or leasehold?
- If the property is leasehold, can it be charged and if so can it be charged without consent?
- Is the term of years remaining on the lease of the property sufficient for security purposes?
Ideally, lenders will be looking for freehold or long leasehold titles, registered at the Land Registry with title absolute, that are not already charged to a third party (save for the Welsh Ministers).
2. Charges of part
Offering part only of a development for security can often lead to complications, complexities and potential delays but this is sometimes unavoidable if a development has been carried out in phases and completed phases are to be charged as the development progresses. If you decide to offer part of a development for security, the following points will need to be considered:
- Suitable plans. We discuss this requirement in more detail below.
- What shared infrastructure, for example, roads and sewers, are to be included in the charged property? Will this have an impact on future phases of development?
- You will need to consider securing sufficient rights for later phases or undeveloped land – this is not straightforward as a landowner cannot grant or reserve rights to or for itself.
- Is the balance of the property charged to another lender? Is it going to be charged in the future?
- Invariably when dealing with charges of part, a deed of cross-rights will need to be negotiated and entered into to address the issues identified above and to protect future development of the remainder of the site. All interested parties will need to sign up to this deed and this can lead to lengthy negotiations and an inevitable delay to the transaction as a whole.
If you are proposing to offer part only of a development as security this should be brought to the lender’s attention and your solicitor’s attention at the outset of the transaction.
3. Restrictions on title
The initial title review should also consider whether any of the titles included in the security are subject to restrictions that require third party consent to a legal charge.
Third parties are often reluctant to engage with requests for consent which are not a priority for them. Any titles that do require third party consent to dispositions should be identified and requests for consent submitted as soon as possible. This will flush out any potential issues with obtaining the required consent which will limit any delay.
All titles will be subject to standard RSL restrictions. In particular, section 9 consent will be required from Welsh Ministers. Usually the section 9 consent application will need to be approved by the lender prior to the RSL requesting formal consent. The original section 9 consent will also be required prior to completion to enable a certified copy to be supplied to the lender.
All properties needto be identifiable for search and security purposes and plans are especially relevant on a new development.
Lenders tend to accept ‘1 in 10’ sample searches for new developments and title plans are not always suitable for these purposes. If the title plan has not been updated by the Land Registry it will often show bare land rather than the final development layout and this will be unacceptable for search purposes.
A suitable plan will also be required for charges of part. The land to be charged needs to be clearly identifiable on the OS map or the Land Registry will not accept the plan.
When providing plans for searches or for inclusion in charges of part, the plans should always:
- Clearly identify the boundaries of the property, for example edged in red
- Clearly identify the individual units to be charged
- Show as much detail as possible of surrounding features e.g. the name of the access road and the nearest adopted highway
- Be to a Land Registry compliant scale – 1:1250 or 1:500 (for urban areas) and 1:2500 (for rural areas)
- Have a north point
Hopefully, the above will help you to select suitable properties from your portfolio for secured lending purposes. Once these properties have been selected, the Lender will have enquiries that need to been satisfied in order for the transaction to progress. These enquiries will vary depending on the age of the property being offered as security.
In the next part of the series, we will help you ‘get your house in order’ to satisfy the lender’s requirements in relation to your new developments. You can read part two here.
If you require any further information or in-house training on this topic, please do get in touch with the property team at Hugh James.