Commercial Property Finance.

Refinancing involves replacing an existing loan with a new one — either with the same lender on revised terms, or with a new lender. Borrowers refinance for various reasons: to obtain a better interest rate, to release equity from a property that has increased in value, to fund further investment, to consolidate borrowing, or because an existing facility is coming to the end of its term. The process involves: agreeing terms with the new lender; the new lender carrying out due diligence and valuation; the borrower's solicitor reporting on title and dealing with the new security; redeeming the existing loan and releasing the old lender's charge; and granting and registering the new lender's charge. Timing is important — the redemption of the old facility and the completion of the new one are usually coordinated to happen simultaneously. Early repayment charges under the existing facility, and the costs of the refinancing, should be factored into the decision. Specialist legal advice ensures the refinancing completes smoothly and the security is correctly dealt with.

A facility agreement sets out the terms of the loan and imposes a range of obligations on the borrower beyond simply repaying the money. Key obligations typically include: making payments of interest and capital on the due dates; complying with financial covenants — such as maintaining a specified loan-to-value ratio or interest cover ratio; providing financial information and reports to the lender; maintaining insurance over the property; keeping the property in repair and not altering it without consent; not granting further security or disposing of the property without the lender's consent; and notifying the lender of any default or material change in circumstances. Breach of any of these obligations — not just non-payment — can constitute an event of default, entitling the lender to demand repayment and enforce its security. Borrowers should understand the full range of their obligations before signing, as breaching a covenant can have serious consequences even if payments are up to date.

Before advancing funds, a lender requires due diligence to confirm that the property provides good security for the loan. This includes: investigation of title to confirm the borrower owns the property and identify any rights, restrictions, or prior charges affecting it; a valuation of the property by a surveyor acceptable to the lender; searches (local authority, environmental, drainage, and others depending on the property); confirmation of planning and building regulations compliance; and, for tenanted property, a review of the leases and the income they generate. Much of this due diligence is carried out by the borrower's solicitor and reported to the lender in a certificate of title. The lender relies on this certificate to confirm the property is adequate security. The due diligence requirements for property finance overlap substantially with those for a purchase, and the two processes are usually run together where finance funds an acquisition.

If a borrower defaults — by failing to make payments or breaching other terms of the facility agreement — the lender has a range of enforcement options under its security. These include: appointing a receiver (often a fixed charge or Law of Property Act receiver) to take control of the property, collect any rental income, and sell it to repay the debt; exercising the lender's own power of sale to sell the property; where a debenture with a floating charge is in place, appointing an administrator over the company; and pursuing the borrower personally for any shortfall, and any guarantors under their guarantees. The lender must act in accordance with the terms of the security documents and its legal duties — including, on a sale, a duty to take reasonable care to obtain the proper price. A borrower facing default should take legal advice urgently — early engagement with the lender may allow a restructuring or refinancing that avoids enforcement.

A certificate of title is a formal document, usually provided by the borrower's solicitor to the lender, certifying the position on the title to the property being offered as security. It confirms matters such as: who owns the property; the nature of the title (freehold or leasehold); any rights, restrictions, covenants, or charges affecting it; the results of searches; and any issues that might affect the value or marketability of the property. The lender relies on the certificate of title to satisfy itself that the property is good security for the loan, rather than carrying out its own investigation. Because the lender relies on it, the certificate of title carries professional responsibility — the solicitor giving it is liable to the lender if it is inaccurate. The certificate of title is a standard and central feature of commercial property finance, and the City of London Law Society produces a widely used standard form.

A debenture is a document by which a company grants security to a lender over its assets — typically including both fixed charges over specific assets (such as property and equipment) and a floating charge over the company's general assets and undertaking. In commercial property finance, a debenture is commonly taken where the borrower is a company, in addition to or instead of a standalone legal charge over the property. It gives the lender broader security — covering not just the property but the company's other assets — and, importantly, the floating charge element can entitle the lender to appoint an administrator if the company fails. Debentures are registered at Companies House as well as, for the property element, at HM Land Registry. Where a company borrows to finance property, the lender will usually require a debenture as part of the security package. Directors should understand the extent of the security being granted before signing.

A legal charge — commonly called a mortgage — is the principal security a lender takes over commercial property. It is a legal interest in the property granted by the borrower to the lender, registered against the title at HM Land Registry. The charge gives the lender important rights if the borrower defaults: most significantly, the power to sell the property to recover the debt, and the power to appoint a receiver to manage and realise the property. Because the charge is registered, it binds the property and takes priority according to the date of registration — a first legal charge ranks ahead of any later charges. The legal charge sits alongside the facility agreement, which sets out the commercial terms of the loan. The borrower retains ownership and possession of the property unless and until they default and the lender enforces its security.

A priority deed — also called an intercreditor agreement or deed of priority — is an agreement between two or more lenders who have security over the same borrower or assets, setting out the order in which their claims rank and how they will deal with enforcement. Where a property or company is financed by more than one lender — for example, a senior lender providing the main facility and a junior or mezzanine lender providing additional funding — the lenders need to agree their respective priorities, because the order of registration alone may not reflect their commercial agreement. The priority deed regulates: which lender ranks first for repayment; how enforcement will be conducted and the proceeds distributed; and what each lender can and cannot do without the others' consent. These agreements are essential where multiple lenders are involved, and they protect each lender's position. A borrower's solicitor needs to ensure the borrower understands how the arrangements affect them.

Commercial property finance is borrowing secured against commercial property — used to fund the purchase, development, or refinancing of business premises and investment property. A lender advances funds to the borrower and takes security over the property, principally through a legal charge (mortgage) that gives the lender rights over the property if the borrower defaults. The borrower repays the loan over an agreed term, with interest, according to the facility agreement. Commercial property finance covers a range of arrangements: investment loans secured against income-producing tenanted property; development finance to fund construction; owner-occupier loans for businesses buying their own premises; and bridging finance for short-term needs. The terms — interest rate, loan-to-value ratio, term, and conditions — depend on the property, the borrower's circumstances, and the lender. Specialist legal advice is needed to navigate the security documentation and the borrower's obligations.

A fixed charge is security over a specific, identified asset — such as a particular property or piece of equipment. The borrower cannot dispose of the asset without the lender's consent, and the lender has direct control over it. A floating charge is security over a class of assets that may change from time to time — such as stock, debtors, or the general assets and undertaking of a company. The borrower can deal with floating charge assets in the ordinary course of business until the charge crystallises — typically on default or insolvency — at which point it attaches to the assets then in that class. Fixed charges give the lender stronger security and rank ahead of floating charges. In commercial property finance, the property itself is secured by a fixed charge (the legal charge), while a debenture may add a floating charge over the company's other assets. The distinction matters significantly on insolvency, where the order of priority between creditors depends on the type of charge.

An investment loan and a development loan serve different purposes and carry different risk profiles. An investment loan is secured against income-producing commercial property — typically tenanted premises — where the rental income services the loan. The lender focuses on the strength and security of the income stream, the quality of the tenants, and the loan-to-value ratio. A development loan funds construction or refurbishment, where there is no income during the build and the lender's security is in a property that is being created or improved. Development finance is higher risk for the lender and is usually advanced in stages against certified progress, with closer monitoring, higher interest rates, and more stringent conditions. The two types of finance have different documentation, drawdown arrangements, and security requirements, and a borrower should understand which is appropriate for their project.

The solicitor plays a central role in a commercial property finance transaction. Acting for the borrower, the solicitor: investigates title and carries out due diligence on the property; reviews the facility agreement and security documents and advises the borrower on their obligations and risks; reports on title to the lender, usually through a certificate of title; ensures the conditions for drawdown of the loan are satisfied; deals with completion, including the transfer of funds and the granting of security; and registers the lender's charge at HM Land Registry and, where applicable, at Companies House. In many transactions, the same solicitor can act for both borrower and lender where there is no conflict, which can reduce cost and improve efficiency — though separate representation is required where a conflict exists. The solicitor's role is to ensure the transaction completes correctly and the security is validly created and registered.