Anyone who has ever purchased commercial property will know that every time you go through the purchase process there is always something new that crops up. The vast majority of things can be worked around, the problem is that sometimes that work around can take time and cost you money.
Recently we have seen a couple of issues where £3 spent early on could have saved £1000’s later on and enabled a purchase to complete several weeks quicker.
The lien over lease
Back in the 90’s and early 2000’s, it was common for high street banks to take a lien on a short-term lease. This meant that where a client had a 10 or 15-year lease on a commercial property that the bank would take a lien over that lease. It gave the bank leverage and, back then, it was commonplace that a lease would attract a premium and therefore offered some tangible value to the lender.
All fair enough and pretty standard.
The challenge comes when the freehold is being sold and a lien is discovered. The lien could be over a lease that is still in force or has expired.
What is often the case is that the business that had given their bank the lien has stopped trading or has repaid all their borrowing. The bank will not release their lien as a matter of course so it stays there dormant until someone spots it. This normally happens during the sale.
The challenge it generates
The challenge with finding a lien is this;
- The bank in question has often restructured and nobody knows who to talk to
- The bank’s client has often left them and is no longer their client
- Data protection means that the bank doesn’t want to talk to you
Getting it resolved can be a pain and a prolonged process. It also means that obtaining clean title to the property is more difficult with many lenders wanting clean title before they drawdown the mortgage.
A quick search on Land Registry can show what is charged against the property. If this is done early on then it gives time to get the lien issue resolved before it becomes a problem. Ordinarily, it is only spotted by solicitors later in the process, if you can bring that forward then your £3 search at Land Registry can end up saving you £1000’s later on.
The video below gives more details.
Hope it helps make your next commercial property purchase a little bit easier.
By Dave Farmer