Preparing for Commercial Property Finance and what lenders’ don’t like on a re-finance.

If you are looking to invest in commercial real estate and to maximise the funds available to you, then new lending or a refinance of existing lending over property you already own may be the solution. Finding the right lender that is best suited to offer the finance your business needs, is critical to securing investment and getting the best rates.

Whether you are looking for a mortgage from a commercial lender to buy a commercial premises, to refinance an existing property, or for finance to expand your current portfolio, it’s essential to understand what lenders look for on property backed borrowing: high-quality, commercially focused legal advice is an important part of this.

Solicitors will often act for both borrower and lender on smaller matters, but in all cases lenders require a solicitor’s report on the title to the property involved (that is, the various legal ifs, buts and maybes contained within the title documents) and also carry out the due diligence that they require – which generally means carrying out conveyancing searches and going through an enquiries process with you. Solicitors also have to check the lender’s valuation report against the facts of the situation – for example, to verify the position as regards planning permissions and confirm (and report on) the terms of any leases/licences-to-occupy which may be in place.

The most important thing a borrower can do is to be prepared, which means being ready to provide copies of any documentation you have relating to the property – for example, if there are tenancies in place, be ready to provide copies of the documentation, and also be ready to provide a copy of your up to date buildings insurance policy. If the property is subject to existing mortgages or charges, be ready to provide copy account details so that redemption statements can be requested.

You will need to go through a basic form of enquiries process to satisfy any lender’s requirements. Each lender has their own requirements and standard enquiries and these will be provided to you at an early stage.

Incomplete information is the single largest cause of delay on commercial finance and refinance transactions. You should expect to be asked for a lot of information – we can help to guide you through this process but recommend, in particular that you have all relevant documentation prepared to be sent to avoid any unnecessary delays, this may include:

• In the event that you’re aware of an issue with title to the property, ensuring you have any necessary indemnity policies ready (this may include but is not limited to search policies, restrictive covenant policies, defective lease policies) If you do not hold any indemnity policies, it is strongly likely that lenders will insist on these being put in place;

• Being ready and able to provide documentation, such as an EPC, fire risk assessment, asbestos survey, gas and electrical certificates etc, and dealing with any findings;

• When refinancing a residential portfolio, Lender’s will require tenancy agreements and any licences necessary, such as an HMO Licence for houses occupied by multiple people. Lenders will also ask that solicitors confirm that the legislation around lawful granting of residential tenancy agreements has been followed;

• Lenders will require that the correct buildings insurance policies are taken out, so as to meet their requirements before they draw down the loan. You should check in particular whether the lender needs to be specifically named or noted on your insurance policy, as not all will have the same requirements in this respect;

• Ensure that when you have discussed the subject property with the lender, that your existing lease and tenancies are acceptable to the said lender. Your lender will want to see and review the appropriate lease agreements and/or tenancies that are in place or to be put in place as part of the lending conditions., and these are likely to be needed not only by your solicitors, but also the lender’s valuers. Be ready to provide any additional documentation associated with the said tenancy/lease and any necessary licences, such as, licences to assign, sublet, occupy and alterations etc;

• The lender will want to ensure compliance with regulations relating to the premises, this will include any planning permission and building regulation approval obtained following works carried out, such as alterations/building works etc;

• Check any necessary consents and approvals have been obtained – if you occupy the property under a lease, the consent of the landlord will likely be required to the lender’s charge against the lease. This can often be challenging, as we will potentially be dealing with another third party’s solicitor, which creates additional work and potential delays being added to the transaction. We would recommend liaising with the necessary parties, at the earliest opportunity;

• The lender may have due diligence requirements beyond those we would request at the outset of a transaction This may amount to their request for additional ID, and please be aware that you may be asked questions about where any funds which aren’t being borrowed for a purchase have come from – a clear paper trail is very important..

You may also have a specific completion date in mind, please be aware, that lender’s do have a strict process when it comes to drawing down funds for the subject property. Therefore, please advise us, so we may work toward this date in ensuring we can provide the lender with sufficient notice, once they are satisfied with their enquiries.

We understand the need to move quickly in commercial transactions and we always work proactively to ensure that deadlines are met and that there are no unnecessary delays. We will look after our client’s interests to make sure the commercial refinance proceeds as smoothly as possible.
If you have any questions regarding commercial property refinance, please do not hesitate to get in contact with Ashleigh or another member of the Commercial Property team.