With the uncertainty of the current housing market, it is now more vital than ever that housing associations are well equipped to act quickly when it comes to charging their stock.
The ability of a housing association to be agile and ready to move quickly in such a volatile market will mean they are able to take advantage of greater opportunities (particularly those requiring urgency).
The key to being able to act quickly comes from being organised and having stock ready to charge in advance. Preparing properties for charging is not just a legal necessity, it also makes financial sense. Early preparation avoids unnecessary delays, legal costs and administrative burdens, for example obtaining planning and section 106 sign offs or negotiating a lease extension is far easier to do in advance than to do so under pressure to meet a funding deadline. Housing associations that prioritise charging readiness into their asset management strategies can maximise the value of their portfolios and reduce the overall cost of borrowing.
A well-prepared housing association also looks more impressive to lenders which may ultimately improve borrowing terms and loan conditions, giving housing associations more flexibility and negotiating power in future transactions. Conversely, being disorganised or poorly prepared can damage trust and limit access to funding options.
So, how might a housing association prepare their properties for charging? This is where we can help. It is essential to identify at an early stage any properties which simply would not be acceptable to a funder. They might have a charge in favour of a third party which cannot be removed, or the units are not actually in the association's ownership. Identifying these issues at the outset narrows down the units available for charging and is done through an initial title review of the properties. The initial title review also identifies any documents we might need to review as part of the charging process and any restrictions on title which would need to be complied with in order to register the charge against that particular property. Dealing with third parties like management companies and Councils can often take some time so it is good to put them on notice at the outset of what is going to be required from them further down the line and get it agreed as early as possible.
Short leases are a common problem and we can identify these in the early stages of the title review. Depending on the portfolio (and the lender themselves) a lender usually require 99 years unexpired on the lease term. Quite often we have leases with less time remaining than this and it means that they are unacceptable for charging. Identifying short leases early means negotiating a lease extension is possible. These things take time and can sometimes be costly to agree so in order to avoid these units being categorised as 'non-chargeable' it is key that these negotiations are started early in the process.
In addition to a title review, we would also carry out searches on the proposed list of properties. The most common searches are chancel, coal mining, environmental, drainage and local. The environmental and local searches tend to present the more troublesome issues when it comes to charging. Quite often we will need sign off of contamination conditions in planning permissions in order to upgrade a failed environmental search. This can take some time, particularly if the properties are over ten years old and the developers and either no longer in business or left the site a long time ago. Local searches reveal the planning permissions and section 106 agreements relevant to that particular site. If the planning permissions or section 106 agreements are old and not available on the Council's planning portal, they can take sometimes months to get hold of and there are often associated costs with getting these out of storage. This again highlights the importance of beginning the review work in advance of a charging exercise to save time and money.
Not only are there delays in obtaining copy planning permissions and section 106 agreements (as well as sign offs), but the wording of the agreements is also particularly important in that it may restrict the value the properties can achieve in the valuation. A defective mortgagee exclusion clause can reduce the value of the properties from MV-STT to EUV-SH. Having the section 106 agreements reviewed in advance means that it may be possible to negotiate a variation to the mortgagee exclusion clause and thereby increase the value the properties would achieve back up to market value subject to tenancies. This demonstrates how early preparation can really maximise the value housing associations can achieve from their properties.
Above is just a snapshot of why it is important for a housing association to be organised and just a few of the common issues we come across in the pre-charging reviews that we undertake. With funding often determining the scale and speed at which housing associations can deliver new homes, ensuring properties are charge-ready is imperative.
Trowers & Hamlins Real Estate Finance Security (REFS) Team are hosting a Property Charging Roadshow discussing the importance of early preparation with housing associations in more detail. If you would like further information on this and how we might be able to assist your team, please do not hesitate to contact Lauren Mason-Smith (REFS team).
