Refinancing: The real value of preparation

Whether you are entering into a finance deal for the first time or refinancing with a new lender, it is certainly worthwhile engaging with your solicitor at the outset and even before you enter negotiations.

Lenders always require a solicitor to carry out legal due diligence on land/property over which a legal charge is being taken. In some circumstances, lenders will be happy for your existing solicitor to undertake the work on their behalf and there are other times where the lender will need to instruct their own solicitor. Either way, your solicitor will be best placed to help you prepare all the legal documentation needed and by engaging with them early, you are likely to avoid delays during the transaction and most importantly avoid unnecessary stress.

Some of the key things to think about and which your solicitor will be able to advise you on are detailed below, although the list is certainly not exhaustive.

Registered or unregistered?

If title to the property is registered, you can ask your solicitor to obtain an up-to-date copy of the Title Register and plan to check the boundaries accurately reflect those on the ground and to review the title to remind yourself of any matters affecting the property.

If any of the property is unregistered, you will need to ensure that you have good title to it. Hopefully you have the title deeds in your possession evidencing 15 years of ownership but if you don’t and they are lost or have been destroyed, then you will need to provide alternative proof of your ownership such as in the form of a statutory declaration backed up with supporting evidence.

Ownership

Who owns the land? It sounds a simple question but often there is confusion over the true owner of property. Firstly, there is legal ownership: who is the person detailed on the title? Secondly, there is the beneficial ownership. For example, Farmer Ted may own the property legally and be the registered proprietor noted on the Title Register but the property could in reality be a partnership asset or held on trust for beneficiaries. It is important the lender knows the correct position at the outset because this will impact who needs to be a party to the Legal Charge documentation and can avoid delays which often arise when loan documentation has to be amended.

Who is in occupation?

Is the property farmed in hand by the borrower or are there other parties involved? If you have contract farming arrangements or tenancies in place, the bank will want to ascertain the true extent of these rights. For example, if you have agricultural workers and their families living in a property on the farm, the value of the property they are residing in could be significantly de-valued if the occupants have protected rights of occupation.

Covenants or restrictions

The Title Register (if registered), or the Deeds for the property (if unregistered) will detail any covenants or restrictions affecting the land. These are important as they can affect what you are able to do with the property and whether consent is needed from any third party before any new Legal Charge can be put in place and subsequently registered at the Land Registry. Certain covenants/restrictions can also impact the value of the property and the valuer will therefore take these into account.

Is it bare?

Is the property bare land or are there buildings on it? Where you have buildings, you will need to locate any relevant planning permissions and provide copies of your buildings insurance as well as copies of any tenancy agreements that are in place.

Is it ring-fenced?

Charging parts of registered titles can cause complications which can be overcome but at a cost to you, the borrower, because extra legal work is necessary to satisfy the lender’s requirements. If it is possible, it is often easier to offer all the property within a registered title rather than just part of it.

Be generous!

Most modern Legal Charge documents are “all monies” charge documents. This means that they will charge the Property in question to secure money being lent at the time the charge is put in place as well as further advances made by the bank to you, in the future. Clients’ needs change over time and if there is the possibility that you will require additional funding from the lender in the future, you are better to provide them with more property (security) when they make their initial advance to you so that you do not need to go through the whole process again in the future if you need further funding. This can also help if you need additional funds quickly such as to purchase additional land. You are also best to offer land which you don’t intend selling, renting or altering in the future as you will either need bank consent to do these things or need the bank to agree to release its charge over these areas which again requires additional work and time.   

How easily can it be accessed?

If you are offering up property to a lender for security, think carefully about what property you are offering. Offering up parcels which have access direct from the public highway is much more straightforward than offering property which sits in the middle of a farm/estate where access (or other rights) are required over property which is not being charged to the lender. If you don’t own property which fronts a public highway, offer property which benefits from a formal legal access easement.

Water supply

Unpredictable weather patterns in the UK mean that water is becoming even more critical to farmers. If you have the benefit of a Water Abstraction Licence, you will need a full copy of the Licence to hand. If you have misplaced it, we recommend obtaining a copy from the Environment Agency as soon as possible.

Valuations prepared for lenders will almost certainly factor in “value” where property has the benefit of an Abstraction Licence and the valuer will want to know whether the Licence is time limited and whether the agreed supply amount is to continue for the duration of the Licence.

Do any water pipes cross your property and are they publicly or privately owned? Where they are privately owned, you will need to supply a plan showing the route of such irrigation infrastructure including the abstraction points, confirm that it is in good working order and own the property through which the whole supply system lies. If the pipework is located on neighbouring property you will need to check the title to your property to establish that there are rights to use the pipework owned by a third party.

Conclusion

As you can see, there are many issues to be considered when financing property by you, your solicitor, the lender and the valuer. Collating all the documentation early will ensure that there are no delays and will ensure you have time to sort out any issues which are uncovered as part of the initial due diligence process so that the lender’s legal requirements can be satisfied quickly in the transaction.

If you would like any advice or assistance with your financing please do get in touch with Lucinda Sawhney who will be happy to guide you through the process and answer any questions you have.