Refinancing commercial property?

19th November 2019

There are any number of reasons why you might consider refinancing your commercial property, but whether it’s to raise funds to expand your business, refurbish the property to improve rental income or to increase your portfolio there is a lot to do before a lender will release the money.

When initially considering your application for finance, lenders are likely to require a significant amount of information from you.

This information might include personal/business bank statements covering the last several months, your trading figures and proof of your identity. Some may even require a business plan and all will require sight of your Lease/tenancy agreements or details of any interest in freehold property.

It is easy to think that funds will follow swiftly once the initial lending criteria is met, however where security is to be taken over property, further due diligence will inevitably be required. This is when your legal representative becomes involved, working to ensure that the property (or properties as the case may be) represents good security for the lender.

It is at this stage that we see some familiar stumbling blocks that typically slow the process of refinancing and can lead to frustration for owners of commercial property.

It is easy to read the list of required documents on the websites of lenders offering commercial mortgages and overlook some of the detail likely to crop up during the refinance process.

You have to remember that lenders will tend to approach this process with a ‘non-commercial’ viewpoint. For the most part, they are unwilling to take risks on a property, particularly in the current economic climate and will tend to follow their criteria without deviation.

Prepare in advance to avoid delays

Whilst borrowers will undoubtedly want the process completed quickly, we find similar issues that delay transactions crop up time and time again.

Here are a few points worth considering before you begin your application, as an issue with any of them might well delay access to funding.

Tenanted properties – If the property is tenanted, the lender will likely want to see appropriate lease agreements in place. Licences to occupy, for example, represent a risk to lenders, in that the licensee (the occupier) may inadvertently obtain security of tenure.

Likewise, if a property has a residential element to it, lenders will want confirmation that assured shorthold tenancies (AST) are in place. You will also be required to show that tenant deposits have been collected properly and the rules governing deposits have been complied with.

That is not to say these issues will be ‘deal breakers’ for the lender, but they do represent a greater ‘risk’ and when risk is increased it raises the likelihood of the transaction being delayed while your legal advisor and lender find ways to mitigate that risk.

Property maintenance – Lenders will want to see that the property has been properly maintained. As a minimum, they are likely to require evidence that appropriate regulatory requirements have been met.

For example, if the property was constructed prior to the year 2000, an asbestos report will be needed and it is highly unlikely a high-street lender will process your application without sight of such a report for older properties.

Energy certificate – Most commercial lenders will also expect to see an energy performance certificate (EPC) report.

If you are to occupy the property yourself, that changes things slightly, but if the property is let or expected to be let, the EPC will need to show a rating of E or above to comply with current regulations.

Fire risk – If you occupy the premises, the lender will expect you to have undertaken a fire risk assessment at the premises to ensure the premises meets minimum fire safety requirements.

Consents – If you occupy the premises under a lease, the consent of the landlord is likely to be required in order to secure the lender’s charge against that lease.

This can be a challenge to obtain, as the landlord has no real vested interest in granting this consent. The sooner such a request is made, the sooner the consent is likely to be obtained.

A lender may require this consent to take a specific form and so it is worth consulting with your legal advisor on this point prior to making the enquiry of your landlord.

Lease extension – If you lease the premises and the lender is taking security over the lease, they may require the lease term to be extended to match the length of the facility being offered. However, steps to increase the length of the lease should wait until the facility has been agreed with the lender, to ensure the lease terms comply with lender requirements.

It is worth remembering if you need to re-finance your property in a hurry that some lenders, particularly the smaller challenger banks, may be willing to overlook certain points listed above and may even agree to proceed on the basis these items will be addressed as post-completion deliverables.

This position will change from lender to lender and so it is worth raising any concerns with them at the earliest opportunity.

If you are considering refinancing a commercial property you own, please get in touch and understand how Ansons can make it happen. Please contact Matthew Easter, an associate solicitor in our Commercial Property team on 0121 716 3693 or