Commercial property finance: frequently asked questions about the legal process
Whether you are just starting out or are an experienced property investor, obtaining secured commercial property finance can seem like a complicated and drawn-out process. After going through the process of finding a lender, providing them with detailed information about you and your finances, your assets and proposals for repayment, the lender will then need to carry out its own due diligence, both legal and financial, to check that you and your property are safe to lend.
Below are five of the most frequently asked legal questions that we get asked when it comes to Commercial Property Finance, along with their answers.
When I bought my house the bank did not use their lawyers, so why has the lender instructed separate lawyers?
The Solicitors Regulation Authority (SRA) permits dual instructions where the solicitor acts for the borrower and the lender within pre-agreed terms set out by the SRA. The majority of mortgages over residential property are progressed on this basis, but commercial property finance often falls outside this exception and so lenders prefer to instruct their lawyers to act for them.
What do the lender’s lawyers do and why are they asking for documents and information I thought the valuer had already seen?
The valuer will not comment on legal issues, so the lender’s lawyer will need to review all of the property’s title documents as well as planning and building regulations documentation to provide a report on (or certificate of) title to the lender. It is therefore best to give the lender’s lawyers as much information as you can when your lawyer responds to their initial request for information, as this will speed up the transaction.
What is a ‘report on title’ (or ‘certificate of title’)?
This is the document that confirms to the lender you have good and marketable title to the property and is often also used to request funds from the lender to complete the loan. It usually includes key information about the property such as the class of title, the extent of the property being mortgaged, that the property can be used as intended and that there are no issues which might adversely affect its value and future saleability and mortgageability.
Do I have to go to the expense of obtaining searches for the property or will the lender accept a no-search indemnity insurance policy?
Ultimately this will depend on the lender and the type of transaction – indemnity insurance may be acceptable in lieu of searches for a simple refinance of an existing commercial property, but lenders would generally expect full searches to be carried out where their loan will be funding a development.
What is Independent Legal Advice (‘ILA’) and why do I need it?
Where the borrower is a company, most lenders will require one or more directors to personally guarantee the company’s obligations under the loan facility and mortgage. The guarantee will enable the finance provider to pursue the guarantors directly if the corporate borrower is unable to repay the loan or breaches the terms of the loan. As the company and its directors are separate legal entities, most lenders wish to be satisfied that the guarantor is independently advised on their obligations separately from the corporate borrower because of a potential conflict of interest between the borrower and guarantor. In some limited circumstances, a lender may be prepared for your lawyer or someone else in their firm to advise guarantors. If not, you will need to speak to another lawyer to deal with this part of the lender’s requirements.
Commercial Property Finance At GA Solicitors
To ensure your loan progresses swiftly and smoothly we would strongly recommend you instruct a lawyer with experience in commercial property finance transactions. Our specialist commercial property finance team at GA Solicitors will be pleased to guide you through the process, so feel free to contact them today at 01752 203500 to find out how we can help you. You may also email us at enquiries@GAsolicitors.com or contact a member of our team directly by clicking on the links to their profiles below.
GA Solicitors’ commercial property team is ranked in the Legal 500, with both Lucy Foster and Hannah Madders specifically recommended for their property finance work.
Keep an eye out for our upcoming article explaining the legal due diligence required for development loans and the various documents borrowers are likely to be asked to provide before the loan is completed.
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