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Cripps Harries Hall Comment: Banks delaying consent to transactions3rd July 2012

Simon Schipper, Cripps Harries Hall

It is no secret that the extent of lending to the property sector has been an issue over the past few years. Indeed, the current trend is for some banks to exit the UK property lending market altogether (as announced by NAB's Clydesdale and Yorkshire banks recently) while others look to scale down. New entrants, like insurance companies, look to fill the void left by the banks.

Yet, no matter whether you are dealing with a lender on its way out or a new entrant on its way into the market, if you need their consent to a transaction there may be delays ahead.

What can you do? 
Well, perhaps the best advice is also the simplest. Plan ahead as much as possible, to minimise any delay. 

Alternatively, there is the question of whether you can dispense with the need for the lender's consent? 

Nowadays, security over real estate will almost certainly include a legal mortgage.  A legal mortgage constitutes a disposition in favour of the lender, and so conferring a legal interest on the lender.  A lender has the same "protection, powers and remedies" (s87 LPA 1925) as if the mortgage had been created by way of a lease for 3,000 years (freeholds), or a lease for a term of one day less than that held by the borrower (leaseholds).  So, the likelihood is that whatever the proposed transaction, the lender's consent will be needed to ensure that the transaction cannot be upset in any way at a later date.  Moreover, if the transaction will result in a registerable disposition granted out of the borrower's title, then the Land Registry will need evidence of the lender's consent before registering the new interest - assuming the lender's legal mortgage is protected on the register by the usual restriction.

Is there a compromise position?
An agreement could be used to place a suitable contractual obligation on the relevant party to obtain its lender's consent to the proposed transaction. That way, the transaction could be secured conditional on the consent being provided before completion with appropriate arrangements being made in the meantime. For example, in the case of a letting, early occupation could be allowed.  

Does statute help at all?
In certain specific circumstances, a lender's consent is not required for leasing or accepting surrenders (ss 99 and 100 LPA 1925), but this also depends upon the relevant conditions in those sections being satisfied, and on whether the mortgage deed itself provides otherwise.   Most mortgage deeds in practice will usually stipulate that the lender's consent is required, but will rarely be available to check.

In summary, plan ahead. Identify the need for any lender's consent to a proposed transaction at an early stage and ensure that the request is made at the outset based on the agreed terms. If the lender needs to see and approve the agreed form documents then it may well assist if the lender has by then already been made aware and approved the transaction in principle.


 


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