Many development sites are funded by way of third-party lending; either to purchase the land in the first instance, or to fund the build. In exchange for this funding, the third-party lender e.g. a bank or building society, will wish to secure their loan by way of charge over the property.
Before doing so, a lender will want to ensure that the property has a good and marketable title, giving them some comfort that they will be able to successfully enforce their security should they need to do so.
Lender requirements are notoriously extensive, and so the sooner we are made aware of lender involvement, the sooner we can start gathering the required information and dealing with potential issues.
Purchasing with lending
Lenders sometimes appoint their own legal representatives to act for them and this is common in larger transactions when the amount being borrowed is greater. However, in some instances, lenders instruct us to act for them alongside yourselves. This keeps their costs to a minimum and avoids delays.
When acting for a lender in these circumstances, we are required to carry out a certain level of due diligence on the property. We will be required to report on any issues and seek to resolve these before certifying that the property has good and marketable title by supplying a Report of Title. Only once a Report on Title has been issued will a lender release funds.
Because this investigation into the property is carried out prior to the purchase, we can raise enquiries of the seller and their solicitor who will have a greater knowledge of the land and will be inclined to assist us to speed up the sale. As a result, we can more easily address lender concerns and iron out any issues.
Should there be any unacceptable issues with the land, and the lender is not prepared to lend, you are at least aware of this before committing to the sale and can make an informed decision as to whether or not you proceed.
Obtaining lending following a purchase
With a cash purchase, the only person who needs to be satisfied with the condition of the land (within the confines of the law) is you. It is your prerogative to purchase land riddled with title issues, contamination and Japanese Knotweed should you wish to do so… although we would strongly advise you of the risks of doing so! However, should you later require lending, issues you may have taken a view on during the purchase are may become a problem.
As addressed above, the lender will require a certain level of due diligence to be carried out before they will be prepared to release funds. If this is only carried out once the land has been purchased, you will no longer have the assistance of the seller. Further, should the lender refuse to lend because they consider the property bad security, you may be unable to execute your plans for the land.
Plans can always change, but knowing a lender will be involved at a later date may alter the form of enquiries that we raise and so it is crucial we are made aware of your future intentions as soon as possible.
We do appreciate that sometimes, lending is not anticipated, and is required due to sudden changes in financial circumstances. As such, and to avoid potential issues in the future, we would always recommend full due diligence be carried out at the time of purchase.
How Ellisons can help
Obtaining legal advice at an early stage will mean that the correct level of due diligence is carried out at the earliest possible stage to avoid delays and issues further down the line.
If you have any questions about purchasing with lending, or re-financing a site after purchase, please do not hesitate to contact one of our Property Experts who would be happy to assist.
