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The Devil in the Detail

22nd Dec 2021

We’re involved in a refinance for a client.  They own a building in a freehold company.  About half of the building was refurbished and converted into six flats and rented for a healthy figure.

A separate company was created to hive off the developed flats and then transferred within this new company; this way it could benefit from a lower rate of borrowing, which over a five year period was a pretty substantial saving to the tune of about £65K.

The transfer did not attract either stamp duty or capital gains tax as it is classed as an inter company transfer.

This arrangement, however, led the lender to want what they call a comfort charge on the freehold title of the company.

Given that the application and approval was only on six separate leases, I questioned the reason as to why this was requested.

The reason I was given, which sounded reasonable, was when the ownership is the same, they require the charge to ensure the freehold company simply does not dissolve the underlying leases; and therefore leave the lender with no security.

That made sense, any lender would seek the same.

However, the devil is always in the detail.  And when it came to the lawyers and the actual legal stance there transpired a different picture.  It appeared the lender wanted the freehold company to give a full guarantee for the loan amount.

Which was not applied for or even offered.  This was outside the scope of what had been agreed.  Perhaps they were hoping this would slip through the cracks, and would get unnoticed.

This point could potentially stop us from selling or even refinancing the property in the future.

Needless to say, we have pushed back on this point.  Furthermore, we are relooking at alternate ways to finance this deal just in case the existing lender does not see reason.

We are fortunate to have a good connection with the current lender, they have agreed to extend the term for a further six months; giving us plenty of breathing space to either find an alternate lender or sort the current issue out.  Meanwhile, the rented flats are bringing in an annual income of almost £90K.

As we enter the Christmas period, things are slowing down, lawyers, and lenders are of course winding down.

However, this is also the time one can pick up a few deals.  Remember, there are sellers in the market who have to sell.  Now, our job is to seek them out.

This week we have placed several offers, mostly for repossessed properties.  The ones which come to fruition will be seeking investors. If you are ready to do a deal, do get in touch.

Suresh Vagjiani

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