The National Housing Federation sector standard Certificate of Title ("CoT") prescribes that the properties being charged are registered to the borrowing RP. This can be a problem for newly acquired stock as the Land Registry continues to operate a backlog in registering applications and these delays can be significant with larger developments due to the number of applications being lodged against a developer's title prior to the RP's acquisition. The consequence of this delay with the chain of registrations is that the current registered owner's title will need to be reviewed and any material pending applications against this will need to be disclosed in the CoT.
Risks:
- Pending RP title registration – a funder may require undertakings from the acquisitions solicitors to assist with facilitating registration of the charge and dealing with any Land Registry requisitions raised. Any issues with pending transfer registrations may not be identified until priority searches for the charge are submitted, which does not allow much time for any required rectification to be performed.
- Charges must contain "adequate conveyancing descriptions" – sufficient detail must be provided to set out the events leading to title passing to the RP. Use of pending title numbers alone can lead to issues where acquisition registrations have been cancelled.
Recommendations:
Notify your acquisition solicitors of your intention to charge and establish good practices with them for the prompt notification of requisitions and clear demonstration of the actions taken to resolve them to avoid cancellation of pending title numbers. Ensure that registration documents are provided promptly to enable up-to-date titles to be reviewed. It may also be possible to request expedition of Land Registry applications.
Planning
Planning permissions and Section 106 agreements for large and phased developments often contain extensive infrastructure and financial obligations on the developer. On charging the RP will need to provide written confirmation from the relevant Local Planning Authority ("LPA") that all such obligations have been discharged in full.
Risks:
- For phased developments obligations can be staged across the phases and refer to multiple trigger points for when they should be completed. By their nature S106 agreements bind the entire site so RPs could be held liable for (and therefore required to contribute towards) obligations in other phases – including infrastructure obligations, such as the construction of schools and the provision of open spaces which may not complete for many years.
- Applications to the LPA to discharge conditions may be pending decision at the time of charging. Discharge timings will depend on when the developer is ready with supporting information across the wider development and the LPA's reviewing procedure.
Recommendations:
RPs can take certain positive action to make the charging process easier, notably by procuring:
- RP and funder exclusion in S106 agreements – if not included, a deed of variation to insert an exclusion from the non-affordable housing obligations could be negotiated as part of the acquisition process.
- Developer indemnities – negotiating a developer indemnity which extends to funders and successors in title in relation to planning and S106 obligations in acquisition documents may provide funders comfort where there are undischarged planning obligations.
- Effective systems with developers – this could include agreeing a process for developers to regularly provide discharge information and documentation to the RP, or an RP policy not to accept handover of units until all planning conditions are discharged by the LPA in writing.
- Indemnity insurance for undischarged planning permissions – this should be sought as a last resort if sufficient comfort cannot be provided by other means.
Beware the risk that cover may not be available or on a lender-only basis if any previous contact has been made with the LPA in relation to discharge. Policy premiums can also be expensive.
Stock types
There is the potential to include new stock types in charging exercises and the intention to charge these should be brought to the attention of the funder and their valuer at an early stage in case they have any additional requirements.
These may include:
- High-rise buildings – specific consideration needs to be given to evolving building safety legislation, including the Building Safety Act 2022, and any in-occupation obligations of the RP.
- Modern Methods of Construction (MMC) or any other non-standard building method.
For all types of residential stock an RP should ensure that new building warranty certificates (such as NHBC) and Building Regulation Control Certificates (BRCC) are obtained as a condition of handover.
Summary
Effective data and documentation collation is critical to being ready for a charging exercise and establishing good relationships with developers and acquisition solicitors is also key. Trowers' Real Estate Finance Security team has considerable experience charging newly built and different types of residential stock and can assist with making the process more streamlined and cost effective.
Hannah Jackson is a Partner at Trowers & Hamlins.