In recent years, the rise and rise in agricultural property values has created a solid base on which banks have been able to secure their lending to landowners.
With agricultural land values now levelling out, how can landowners keep their legal spend under control when looking to remortgage?
Don't be afraid to explore the market
Different banks offer different rates and your incumbent bank may not be the most competitive at the time.
From a legal perspective, the work that needs to be carried out is unlikely to vary significantly between banks. If the landowner is moving a substantial amount of borrowing from one bank to another, banks may be keen to be accommodating on terms generally regarded as standard.
Only offer land for security that is ring-fenced in one title
Charging parts of registered title involves extra legal work and additional time in preparing plans that are compliant with Land Registry formalities.
Where possible, always try to charge the whole of a legal title.
Has the land got direct access to a public highway?
It may sound obvious, but the bank needs to be able to sell the land on the open market in a worst case scenario. A landowner should always be proposing land to be used as security that has road frontage or at least a confirmed easement of access.
If the security property is separated from the highway by the borrower's other land outside the mortgage an additional bespoke document will need to be created between the bank and the borrower, again causing an increase in costs.
The same point applies to any services that may be required for the proper functioning of the charged land.
Do any residential tenants have protection as a current or former agricultural worker?
Time and time again, farms and estates are valued for mortgage purposes and the precise nature of the residential tenants is overlooked.
Agricultural workers and their families can gain protected rights of occupation in many circumstances. The result of this is often to slash the value of the cottage and this can risk the viability of the whole security package in extreme circumstances.
It always pays to take advice before granting a tenancy to an agricultural worker. Where agricultural workers are already in situ, make sure that any bank valuer is aware of this when they carry out their survey.
Is there a distinction between the legal and beneficial ownership of the land e.g. is the land a partnership asset?
Farmer Giles may own the land but is that land categorized as a partnership asset or otherwise held on trust for beneficiaries? If so, make the bank aware of this at an early stage so that they can prepare their documentation accordingly. If the lawyers acting for the bank receive the incorrect paperwork from the bank with their formal instructions, it takes time to have this corrected which only delays the eventual date of drawdown.
Are there any occupants of the land who are not a party to the borrowing, e.g. a spouse or adult child?
Is there a wife or adult child living in the farmhouse but who is not a party to the mortgage? Tell the bank or your advisor as soon as possible. The occupants are likely to be asked to postpone their interest in occupation in favour of the bank.
To do that, they will need to be independently advised by a separate firm of lawyers. This sometimes takes time to arrange and it is far better to have identified the issue at an early stage than to have to put in place appropriate steps mid-way through the remortgage instruction.
What is the bank’s threshold for separate legal representation?
Each bank sets different internal rules but generally, the more that is borrowed or the more complex the arrangements on the land, the greater the likelihood that a bank will require its position to be protected by a separate firm of solicitors chosen from the bank's legal panel.
The bank's lawyers will carry out a checking exercise on the information provided to them by the borrower's lawyers. This is likely to involve detailed searches and enquiries and even lawyers who have acted for the borrower for years are unlikely to be able to prevent the Bank from requiring separate representation. All of this has a time and cost implication.
If the amount to be borrowed falls below the threshold for separate representation, the transaction is likely to be concluded more quickly.
Involve your lawyer at an early stage
Ironically, by involving your lawyer earlier, you are more likely to achieve completion of the mortgage quickly and save money on your legal bill.
Why is this? Because the difficulties that lawyers have on most mortgage instructions is a lack of information at the start of the transaction.
The more information available to a lawyer before the transaction gets underway, the better they will be at giving an estimate of the time until completion, of scoping the whole instruction and giving an accurate costs estimate for the work that is required.
This article was written by Peter Roberts.
- Real Estate
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