Preparing your housing stock in order to support new funding

November 6, 2024

Rubyn Campbell, Wendy Wilks and Jessica Church outline the steps registered providers can take to prepare for charging to a funder.

Whether it is charging your stock directly to a funder, or charging to a security trustee for future allocation, the process can prove to be challenging with the need to pull vast amounts of documents together within a set time frame. At Bevan Brittan, we believe allowing time for ample preparation is the key to achieving the optimal value. To achieve this, we offer a pre-charging service (sometimes referred to as “Rolling Charging”) designed to prepare your stock for charging to a funder and to weed out and resolve any chargeability and valuation issues that could potentially hinder your ability to maximise your borrowing capacity at live transaction stage.

Know your stock – Is it chargeable and at what value?

Charging transactions can take anywhere on average from 2 months – 5 months and beyond depending on the size and condition of your property portfolio. It is therefore highly recommended to check your asset data from a charging perspective prior to entering into a live transaction. To assist in this process, we are able to carry out a preparatory due diligence programme to minimise securitisation risks. We can provide this tailored to your requirements and can be light touch or a more detailed deep dive due diligence chargeability and valuation assessment with a rectification programme to address any defects. However, typically, the process usually involves:

Checking your property list: Having an accurate property list complete with title information, tenure, existing charges, and build dates is essential, as this is the starting point of any charging transaction. Being able to identify the titles within your ownership as early as possible will ensure that you know the extent of your properties, their potential value and chargeability status and whether you have enough clean security to support your anticipated funding requirements.

Title due diligence: Having sight of your title registers will allow us to obtain any land registry title documents which may contain affordable housing use restrictions and consent requirements which limit chargeability and/or valuation. Having a list of security and title numbers is a solid starting point, but this will not inform you with accuracy whether the properties can all be charged and, if they can, at what value. Again we can carry out a high level “Restriction and Consent Review” or a full check of the title. Please note that the Land Registry is about to increase its fees for obtaining copies of title registers significantly and so we would recommend obtaining copy titles in advance of 9 December 2024. We can then carry out an initial chargeability assessment on your properties to identify:-

properties which appear to be ready for charging without issue and can achieve Market Value Subject to Tenancy (MV-STT)
any properties which may require rectification work to achieve maximum value at MVS-TT
any properties which are unchargeable or limited to Existing Use Value (or “EUV”)

Local Land Charges and planning review: The absence and unavailability of relevant planning documents can serve as the most significant hindrance to maximising your borrowing. This is due to:

Local Authority search turn-around times
Local Authority turn-around times for providing documents
Historic planning documents which cannot be found
Planning permissions for new builds revealing conditions requiring sign off by the Local Authority
Planning documentation revealing affordable housing use restrictions or other issues for charging and valuation

Uncovering, locating and obtaining planning documents as quickly as possible for review is essential for a smooth live transaction. With this in mind, we carry out a Local Land Charge searches on a sample of your property portfolio to identify planning documentation to identify restrictive use or contamination conditions in your planning permissions, or defective mortgagee exclusion clauses in Planning Agreements. In addition to our title due diligence above, this provides further security visibility and allows us to crystallise our initial chargeability assessment to identify the properties which can achieve maximum value.

Data exchange and pre-charging portal

During a live transaction, Registered Providers will often receive a number of queries from their charging lawyers, and requests for documents in respect of their properties. This can be an ordeal as Treasury teams will often have to liaise with their development departments who hold this information and this can present a timescale risk to transactional deadlines. As part of our pre-charging due diligence, we raise queries prior to entering into a live transaction, which will assist in either (a) removing a potential issue all together, (b) to be able to provide sufficient comfort to a funder or (c) identify where rectification work may be necessary at an early stage. As a result of that work you would have a clear picture of your security chargeability and valuation profile. We also seek to minimise queries by grouping these together in our “Confirmations Checklist” and only raise property specific queries where necessary to reduce the burden on your Treasury and in house teams.

Our interactive online portal will also allow us to consolidate your security information and report to you in a way which best suits your needs. We can virtually share and store asset data and documentation, raise queries, apply a RAG traffic light analysis and provide visibility on chargeability, valuation and rectification work, with reporting mechanisms in terms of timescales and costings. We have a team of security data technicians who specialise in evolving functionality. We also work with web based data providers and AI systems to support the due diligence process, where appropriate in terms of added value. Our service provide a date room tutorial for your teams at project inception.

Title and planning rectification – unlocking value

With the time afforded by a pre-charging strategy, we are able to resolve problematic matters which restrict value on the properties we have identified in order to capitalise on the value of your assets. This usually involves:

Liaising and negotiation of deeds of variation to Planning Agreements with Local Authorities or third parties and
Correcting title errors or defects on your title register with the Land Registry

Rectification processes can take months to remedy as the input of third parties is frequently required who may not view this as their first priority. Properties which require rectification are often either removed from charging property portfolios all together and put in the “too difficult” pile or charged at EUV. Either way, this presents a security risk and a potential loss of value which can sometimes be significant, an avoidable outcome if a pre-charging strategy is implemented and supported by your in house teams. Rectification work can either be dealt with at (a) the pre-charging stage, (b) following completion to achieve an uplift for properties secured at EUV or (c) following completion to prepare the properties which were unchargeable and therefore removed from the charging transaction, for a future funding transaction.

Strategic security advice

If you are considering property charging as a means of securing new funds, we would highly recommend carrying out a pre-charging review of your security well in advance of transactional timescales. Your solicitors will need to review the title and planning issues to provide an accurate assessment of chargeability and valuation. It is critical to have support from your development teams as early as possible to ensure your security documentation and data are organised into scheme packs which are easily accessible by you. This should include:

Title documentation
Plot to postal schedules
Planning Documentation
Road and Sewer Adoption, Highways and other statutory Agreements
NHBC (or equivalent) and Building Control Certificates
Building Regulation Certificates
Indemnity insurance policies placed on risk benefiting the property
Reports on title from acquisition or previous certificates of title

We can also provide your treasury and development teams with training to help guide you through the charging process to develop an understanding of the process, funding requirements and common barriers – with our solutions as to how to resolve any issues and reduce transactional risks. This forward-thinking approach ensures that budgets are kept within predicted ranges, pitfalls which may otherwise hinder your ability to charge at maximum value are resolved and transactional timescales do not overshoot agreed deadlines, which is particularly important for capital markets transactions.

Rubyn Campbell is a solicitor and Wendy Wilks and Jessica Church are partners at Bevan Brittan.