Educational institutions – can they be funded using estates as security?

There is always a push for educational institutions (EI) to keep themselves relevant, to have state of the art facilities and learning environments to ensure curriculum and a quality student experience is delivered. The question is how do you fund them?

Often, whilst EI’s will have a budget available to them to support projects, they may need to explore additional funding streams in order to finance larger projects. Additional funding is often achieved through a secured lending facility.

Do I need to grant a charge over the whole campus?

Security by way of a legal charge can be granted over the whole or part of an educational site. Often campuses are quite vast with some sites running to over 100s of acres, so encumbering the whole site can be disproportionate. Depending on the loan to value ratio, often institutions will look to charge part(s) of their sites. Whilst not as straightforward as charging the whole of a site, there is a significant benefit to EI’s in charging part as it will probably leave the EI free to operate and deal with the remainder of their campus as they see fit.

What do I need to think about when charging part of a site?

When charging part of a site you will need to consider a number of key questions. It is advisable at this stage to seek the advice of relevant professionals, e.g. a Surveyor and/or a Solicitor, to assist with the drafting of any heads of terms to ensure what is being proposed can be achieved; indeed you may also need to check that the EI’s constitution permits the granting of a charge. Some points to consider at the outset would be:

1. Where is the land to be charged, does it abut the highway maintainable at public expense or will it depend on the remainder of the uncharged site for access and services? If it is the latter, you will need to consider relevant easements a lender may require to secure their position in the hopefully unlikely event they ever had to seek possession of the land. Indeed, the EI may need its own easements in such a scenario.
2. Is the land to be charged due to be developed under a planning permission? Again, you will need to consider whether the planning permission covers a wider boundary than the charge site, or if the planning permission is phased, in which case the lender may require any cross obligations in relation to the future implementation of the permission?

Looking at the finer detail

Once you have agreed which easements may be required you will need to consider how these may impact on the future operation of the remainder of the educational site. Careful consideration will need to be made with regards to any authorised times/means of access, any noise during any works to be carried out pursuant to any planning permission, always keeping the primary focus on minimising disruption to the EI as well as mitigating any safeguarding or other health and safety concerns.

Conclusion

Undoubtedly, charges of part come with their complexities and challenges. However, they can help to ensure that large educational sites are not unnecessarily encumbered, allowing EI the freedom and flexibility to deal with the remainder of their property to meet any future business needs. The key is early intervention at the heads of terms stage and careful consideration as to the specifics of the site.

Please get in touch with Julia Harlock or Dwight Patten if you are considering granting a charge to a lender and you have any points you wish to discuss, our Commercial Property Team will be delighted to help.