Unlike a standard mortgage instruction, bridging or development finance facilities aimed at funding development of a property have additional requirements that borrowers should be aware of.
So what is needed to satisfy the lender’s requirements?
The specific requirements will vary from lender to lender, but generally a funding provider will require the following information in relation to provision of development finance where this is to be secured:
1. Title information
This is required to confirm the nature of the property that the loan will be secured against. Items such as the class of title, any title restrictions, the presence of any covenants binding the land, or easement affecting the property will be reviewed and considered by the lender. If there are matters on the title impacting the ability to develop the land the lender will require that action is taken to either remove the relevant entries, or to minimise the risk of enforcement prior to the loan being drawn.
2. Searches
It is likely that a lender will require up-to-date searches (a standard requirement is for searches to be no older than 3-6 months as at the date of completion). Borrowers should be aware of these requirements and allow sufficient time for searches to be returned. For example, it is not uncommon for local authority search results to take several weeks to be provided.
3. Replies to Enquiries
If you are buying a property, this will be the information provided by the seller prior to exchange of the contract. If you already own the property then it is likely that the lender will require replies to standard enquiries, such as CPSE enquiries. This will furnish the lender with background information in relation to the property that will not necessarily be revealed on the title to the property. Documents such as asbestos surveys, fire risk assessments and EPCs should be put in hand in good time prior to funding being required.
4. Appointment of the professional team
Where a development loan is being provided, lenders will commonly require sight of the appointment contracts for the professional team (including the main building contractor, structural engineer and architects). These should therefore be considered and agreed at an appropriate stage. Furthermore lenders may require security over the build contract, collateral warranties from the professional team, or letters of reliance from specific advisors. The developer should contact each party at an early point in the transaction to establish their requirements. Borrower’s should be aware that professionals are often required to have these ancillary documents approved by their indemnity insurers. Therefore the lender’s requirements should be established at the outset to enable applications to be made to the relevant parties at an appropriate time to avoid delay during the course of the transaction.
5. Insurance
Whether the property is insured under a buildings insurance policy, or under a developer’s all risks policy, it is likely that a lender will require that their interest is noted on the policy. This should be established early in the transaction to give the insurer sufficient time to update the policy documents.
6. Planning Permission
If development finance is being made available, then it follows that the lender will want to ensure that the intended development has the correct planning consents. A borrower should therefore be prepared to produce this information, including all documents referred to on a planning consent (such as approved plans and specified surveys and reports). Approval/discharge of any planning conditions should also be made available as should details of any S106 Agreement, or liability to Community Infrastructure Levy (CIL).
It is necessary to consider what documents will be required in good time before funding is required. The more comprehensive the initial information provided, the quicker the lender can be satisfied, and the sooner a borrower will be able to drawdown the facility.
If you require further advice regarding the development of land or any other Real Estate matter, please contact Steph Richards in our Real Estate department. You can also email your query to realestate@herrington-carmichael.com, call 01276 686222 or visit https://www.herrington-carmichael.com/.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
