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We act on behalf of banks and borrower clients in connection with financing property transactions. The finance may be obtained at the time of purchase of a property or it may be, for example, a re-financing of a portfolio of properties at some time later with a new bank.
If finance is provided at the time of purchase of the property then security will be provided to the bank at that time in return for a loan from the bank to the buyer. The balance of the purchase price is likely to come from either the buyer or the buyer’s parent company.
The lender will require security, which is likely to include a legal charge over the property and may include a debenture over all the borrower’s assets as well as taking security directly over the property. The lender may also want security over the rental income, the bank account into which rent is paid and any insurance proceeds.
The funding process will involve establishing the title to the property or properties to the bank or its solicitors as well as answering detailed enquiries about those properties. A lender is likely to want to review the terms of the leases relating to the property to ensure that they provide the income that has been identified by the borrower. They will also want to ensure that there are no adverse covenants in those leases or other provisions that reduce the value of the property.
Sometimes the lender will require charges over other companies within the borrower’s group of companies, such as, the borrower’s parent and/or any other companies in the group that provide financing for the borrower from internal group funds. The lender may also require warranties from property managers.
There will be a facility agreement completed with the bank which will contain details of the terms on which the loan is made to the borrower. There may be a number of regular tests that are applied to the loan and the properties. For example, the borrower may need to ensure that a certain minimum level of income is produced by its property throughout the term of the loan; that income is usually measured against the interest payable to the lender.
If there is an event of default under this facility agreement then the borrower may be required to repay the whole of the loan immediately.
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