Releasing security is the formal discharge of assets that were provided as security for a loan. In this article, we address the questions most frequently asked by borrower clients to help you understand and navigate the security release process.

What are the borrower’s obligations to release security over the property?

The primary obligation for a borrower seeking to release security over their property is the repayment of the loan which is secured over the property. This repayment includes the principal loan amount and any accrued interest and fees, all of which should be confirmed in the lender’s redemption statement.

Which documents are involved in the process of the security release?

• DS1/eDS1: an official Land Registry document that confirms the release of the legal mortgage over the property. Form DS1 needs to be signed by the lender. It is submitted to the Land Registry so that the mortgage is removed from the official records relating to the property. Alternatively, some lenders, who are registered with the Land Registry, can submit an electronic form DS1 (eDS1) following receipt of the loan repayment. In this case, the borrowers need to ensure that the lender’s redemption statement contains a confirmation that the lender will submit an eDS1 following redemption.
• Deed of release: if security documents contain charges affecting any assets other than a property, such charges are typically released by way of a deed of release which is signed by the lender. The borrower will also sign the deed of release if it contains the borrower’s obligation to pay the lender’s costs or if the borrower gives certain confirmations. A deed of release provides confirmation that the borrower’s obligations and liabilities to the lender are discharged and the related security is released.
• Letter of non-crystallisation: where a release is taking place as part of a property sale by a company or a limited liability partnership, the purchaser may also request a letter of non-crystallisation in relation to any floating charges held by the lender who is required to confirm that the charges haven’t become enforceable and the property is released from the floating charges. Such a confirmation can also be included in the deed of release (rather than signed as a separate document).

How long does the process usually take?

The length of the security release process will depend on the efficiency of communication between parties, the complexity of the security, and whether the parties are legally represented. It can take several weeks to complete, so borrowers should plan accordingly.

If a security release is being given in connection with the sale of the property or a refinance with a new lender, it is likely that completion undertakings will need to be agreed between solicitors acting for various parties involved in the transaction. The undertakings will cover transfer of funds to the outgoing lender, delivery of the original release documents to the new lender or the buyer and (if required) service of any notices to third parties. The use of solicitors’ undertakings gives the outgoing lender comfort that the loan will be redeemed and gives comfort to the incoming lender or the buyer that the existing security will be released.

How to perfect the release

After a release of a legal mortgage over land, form DS1 will be submitted to the Land Registry in order that the necessary updates to the corresponding title entries are made.

If the released security was granted by a company or a limited liability partnership, Companies House will need to be notified of the release. Although there is no legal requirement to inform Companies House, it is in the best interest of the borrower to inform Companies House of the release of security by filing forms MR04 (release in full) or MR05 (statement that part or the whole of the property has been released). These forms contain a declaration by a director of a corporate borrower that the charges have been released. They don’t need to be signed by the lender as they are not effecting a release (which would be done by the deed of release) and could be filed either in a paper form or online, via the Companies House WebFiling service.

Following the delivery of a deed of release, it is usual for the outgoing lender to promptly return any title-related documents associated with the released assets.

What happens to the assets after the security is released?

With the security released, the borrower gains the freedom to sell the property without any restrictions from the lender’s interest. Similarly, if the borrower wishes to refinance the property, a clear title is essential for obtaining new financing.

Key take away

Borrowers must ensure they have a comprehensive understanding of the release of security or instruct solicitors to deal with the release on their behalf. This will enable borrowers to avoid any delays in subsequent dealings with their assets and securing any new borrowing.

If you would like a conversation to find out how we could help you or if you have any questions in relation to Releasing Security, please contact our Real Estate Finance team.