The property industry, like all others, is facing a time of uncertainty with many trying to gain an understanding of the implications COVID-19 will have over the coming months. Below we discuss some issues you should consider in relation to your existing property loans.
If you have any current property investment or property development loans, we recommend that you check your existing loan agreements and security documents and, if the current situation affects your business, you may consider speaking to your lender and obtaining a written confirmation that non-compliance with the loan documentation won’t trigger the lender demanding repayment of the loan and/or taking enforcement steps over the assets charged in favour of the lender (a waiver letter).
Some of the provisions in the loan agreements which might be relevant include:
- periodic reporting obligations (e.g. providing to the lender the borrower’s financial statements, management accounts, property monitoring reports, compliance certificates etc.),
- financial covenants (e.g. where the borrower’s income may be affected by non-payment of rent by a tenant),
- payment of interest and other amounts due under the loan agreement,
- property-related covenants, including:
- variation, determination or surrender of leases,
- rent collection,
- payment of rent under a headlease,
- maintenance of the property,
- if you have a tenant who is defined as a “Major Tenant” in your loan agreement and that tenant becomes insolvent, this may be an event of default under some loan agreements and you will need to start a conversation with your lender and either obtain a waiver of that default or consider prepaying the loan (subject to any applicable prepayment fees). However, some loan agreement may contain a provision granting you a grace period within which to find a substitute tenant),
- you may need to obtain your lender’s prior written consent if you are considering taking some steps to protect your business, including:
- if you are applying for any loans which are being offered under the Chancellor’s package of measures to support businesses through this period of disruption – because your existing loan agreement is likely to contain a restriction on incurring any further indebtedness,
- if you are considering speaking to HMRC about taking advantage of the HMRC’s Time To Pay service – because commencing such negotiations with a view to rescheduling any of your indebtedness is likely to be listed as an event of default in your loan agreement,
- suspending or ceasing to carry on all or a material part of your business – because this is likely to be listed as an event of default in your loan agreement,
- if you have a development loan, you would need to check various milestones contained in the loan agreement and the deadlines by which they need to be achieved and, if necessary, negotiate with the lender their extension.
If, on the other hand, you are less affected by the current circumstances and wish to assist someone (e.g. an associated company or another business) by making a loan or granting security or a guarantee in relation to their borrowing, you may also require the lender’s prior written consent – because most of the loan agreements contain an undertaking whereby you promised not to make loans, or grant further security or guarantees in respect of someone else’s borrowing.
If you have any questions relating to this article, or any other property finance issues, please get in touch with Aselle Djumabaeva-Wood.
Visit Hamlins’ COVID-19 Hub for more updates on issues affecting your business.