With the financial pressures of today, there is a critical need for housing associations, community land trusts and developers to raise sufficient funding to cover their plans to meet the demands for housing stock. It can be stressful for providers to undertake batch charging, so here are some tips to make the legal side as easy as possible:
Plan ahead
Forward thinking allows for a smoother process, the best value for the stock and easier negotiation of security documents. It is best to involve your legal adviser as early as possible. We can offer a preliminary review of a proposed batch to identify any potential issues, allowing sufficient time for rectification in advance of the funds being required. For new builds, it is pivotal to advise your acquiring lawyer of any intention to charge the site to ensure documents are appropriate to save any need for future variation.
Timing
The average charging exercise takes around 2-4 months following receipt of a final property list and all necessary documents. This depends on the finer details (e.g. title, planning) and specific lender’s requirements. It is crucial enough time is allowed for completion of the funding prior to the funds being required to allow for any issues to be satisfactorily dealt with. With legal matters of this nature, third parties, such as local authorities, may be involved (e.g. s106 variations, planning confirmations etc) which can delay matters, sometimes leading to schemes having to be withdrawn or secured at a lower value.
Searches
With a charging batch of multiple developments, a search sample will be negotiated, unless it a lender insists they are carried out over every property. Where problematic matters are revealed, further investigations may be required causing delays and additional expense. On acquisition, it is beneficial to retain any site investigations and note any issues to assist with any enquiries arising from the searches.
Planning
The lender will require either outline planning permission together with reserved matters approval or a full planning permission. Planning conditions in respect of new build properties are still enforceable under the 10 year rule so every relevant discharge or confirmation of compliance from the local planning authority must be available. It is essential on acquiring a development that there is an obligation on any developer to obtain such documentation. Further copies of consents and confirmation of compliance from the local planning authority can increase time and expense.
Building Warranty
All new build properties must have the benefit of a new home structural warranty and for the documentation to be available. Whilst the mainstream established providers (e.g. NHBC, Premier) are widely accepted, it varies as to what other providers are acceptable to each lender. During the early stages of a development, if you are aware you may need to charge the properties, you should seek advice as to acceptability of the proposed provider. It is also necessary to obtain copies of all documentation.
Section 106 Agreements
A section 106 agreement will bind land and potentially you and your lender, regardless of whether you were a party to it. Lenders will be cautious if there are any outstanding obligations (e.g. to pay money, provide infrastructure etc), as if you default on the loan, they may be liable. To ease this concern, they may require confirmation from the local planning authority that all obligations have been fulfilled. If there are outstanding obligations without a sufficient mortgagee exclusion clause, the properties affected may have to be removed from the batch, the valuation reduced, the agreement varied or indemnity insurance obtained if it is available.
Another area of caution for lenders is if there is a restriction on occupation or use (e.g. the property can only be used as affordable housing). Such restrictions may reduce the valuation to an EUV-SH (current use as social housing) rather than market value subject to their tenancies (MV-STT). This can be as much as a 60% reduction in value or mean that the scheme is not acceptable to the lender. Where there is a restriction in a section 106 agreement, a mortgagee exclusion clause must be present. Whilst deeds of variation may be negotiated, it can take months with the parties involved so it is beneficial these are considered pre-charging to avoid delaying the charging batch.
Community Infrastructure Levy
If a Community Infrastructive Levy charging schedule has been adopted by the relevant local authority at the time of development, it is likely there will be a CIL liability. The liability and demand notices will need to be provided together with confirmation from the local authority that all monies have been paid, or a copy of any relief confirmation (e.g. Social Housing Relief).
Record Keeping
Given charging a development may be some time after the acquisition of the land, it is beneficial to keep good records and file the necessary documentation you may need to ensure it is readily available. This avoids having to obtain further copies from third parties which could incur additional cost and delay. You will also be asked to confirm you have complied with certain matters within the title, planning documents etc so by keeping a record of any breaches which may arise, you will be able to provide this information without falling liable to misrepresentation.
For efficient charging where the best value is obtained, it is vital that an organisational commitment is made to the charging strategy adopted. If you require advice on charging, please do not hesitate to get in touch with our social housing team.