With the growth of development activity, and related financing activity, by RSLs it pays to be one step ahead when it comes to future charging exercises. Commonly, however, it is the charging work that causes the most significant delay in financing transactions as RSLs struggle to locate missing documents and address unknown title and planning issues.
My experience is that charging exercises are most efficient for RSLs who create a title information pack (a TIP) for each estate/development they complete or acquire at the point of its development/acquisition and subsequently regularly update such TIPs This has the benefit of ensuring that all relevant information is sourced when fresh, rather than being re-constituted after the event, saving management time and cost. TIPs can be either hard copy or electronic. The key thing is for them to contain the relevant information required for the purpose of a charging exercise.
So, what should a TIP include? I would suggest the key ingredients should be:-
- An index
- A list of the postal addresses in the estate/development.
- The Land Register title entries (or if the title is unregistered, copies of the relevant title deeds), together with a title plan.
- A copy of the report on title (or certificate of title) obtained by the RSL at the point of its acquisition/development of the relevant estate/development. It is essential in this regard when creating a TIP to know if the title to the estate/development is good and marketable. If the title report raises any’ red flag’ issues, such as defects in title or title conditions restricting use or sale of the relevant property for purposes other than social or affordable housing (which would inhibit the application of MV-ST valuation methodology) these should be flagged in the TIP and, where possible, actioned through obtaining a waiver of the relevant condition or otherwise. In practice resolving such issues during the course of a charging exercise is likely to be problematic and lengthy, potentially inhibiting the value for security purposes that can be allocated to the relevant stock.
- Copies of discharges of any historic existing standard securities to entities such as the Housing Corporation. If these are not held, then again there can be a substantial delay in securing them.
- Copies of any title indemnity policies to address title defects identified in the report on title for the relevant estate/development. The level of cover under such policies should be kept under review to ensure that they are adequate in relation to the value of the estate/development.
- Copies of the planning permissions, and any accompanying section 75 agreements, authorising the development of the estate/development and its use. In this regard, development in breach of planning only becomes immune from enforcement after a period of 4 years and use only immune from enforcement after an uninterrupted period of 10 years. Planning permissions and section 75 agreements should be reviewed to check that they do not include conditions restricting use of the relevant estate/development to social or affordable housing as this will be likely to restrict the valuation methodology that can be applied to EUV-SH. If there are such restrictions, they should be addressed as early as possible through seeking waivers from the relevant local authority. Again, leaving such action to the time of the charging exercise is likely to result in delay and additional cost.
- Copies of any listed building consents if the relevant development comprises the refurbishment of a listed building.
- Copies of building warrants and completion certificates. It is essential that the completion certificates are obtained and retained and not simply the warrants.
- Copies of desk-top environment reports or other evidence that planning conditions relating to environmental due diligence have been satisfied. If any such reports disclose an adverse environmental issue, this will trigger the need for further due diligence during a charging exercise, such as seeking evidence of appointment of an environmental or geo-technical consultant during the development and their sign-off on the development coupled with a duty of care to the RSL through a collateral warranty or similar. Again, if the relevant paperwork in this regard is sourced and retained in the TIP, it can significantly mitigate against the risk of delay at the time of a charging exercise.
- Copies of Coal Authority reports if the estate/development lies in a designated mining area. Retaining these is sensible as they do not have a life-span and consequently if they are to hand this is likely to avoid the cost of obtaining fresh ones at the time of the charging exercise.
- Copies of any leases of solar panels, telecom facilities etc affecting the estate/development. These should be checked to ensure that they include appropriate protective wording for mortgagees and if not this should be actioned. Without such wording they are unlikely to be acceptable as security.
- Copies of NHBC, or equivalent certificates, if available for the relevant stock.
- A note of any disputes affecting the estate/development (excluding management disputes over rental arrears or similar) and their status.
- A well maintained TIP is of real benefit when it comes to co-ordinating a substantial charging exercise and is likely to significantly reduce the cost and the time timetable for completion of the charging exercise.