Harper James is a full-service UK commercial law firm advising businesses under the laws of England and Wales, with practice areas including commercial property and banking and finance. Commercial property finance covers the funding used to buy, develop, refinance or otherwise operate business premises and investment property.
The appropriate structure depends on the property, the borrower and the intended use. A term loan is commonly used for an acquisition or refinancing, while development finance is arranged around construction costs and the expected value or sale of the completed project. An owner-occupied business may borrow against its premises, whereas an investment borrower generally relies on rental income as well as the property value. Key commercial terms include the loan amount, interest rate, repayment date, arrangement fees, repayment profile, loan-to-value ratio and financial covenants.
A lender normally requires security over the property through a legal charge. It may also require a debenture over the borrowing company, guarantees from connected companies or individuals, and security over rental income, insurance proceeds or other assets. Before funding is released, the parties usually review title, rights affecting the property, planning permissions, building regulations, environmental matters, occupational leases, rent deposits, insurance and any existing security. The loan documentation records the borrower’s obligations, restrictions on further borrowing, reporting requirements and the lender’s rights following default.
The borrower first prepares financial information, a business plan and property details for lenders or a finance broker. Once indicative terms are accepted, the lender undertakes credit approval and legal due diligence. The borrower’s solicitor reviews the facility agreement and security documents, checks the property title and reports issues that affect value, use or enforceability. Conditions precedent are then satisfied, which can include evidence of insurance, corporate approvals, property searches, lease reviews and confirmation that existing charges will be released. Completion takes place when the finance documents are signed and the agreed security is registered.
The borrower must comply with the facility agreement throughout the loan term. This generally includes making payments on time, maintaining insurance, providing financial and property information, observing financial covenants and obtaining consent before making restricted changes to the property or ownership structure. A planned refinance should begin before the existing facility matures, allowing time to address valuation, title, lease or covenant issues. If a covenant breach or payment problem arises, early review of the facility agreement is necessary because the available remedies depend on the wording of the documents and the circumstances of the default.