Certificate of Title
Before properties will be accepted as security, a Certificate of Title must be provided by Devonshires. The Certificate will deal with:
(a) Title Issues
Once the titles have been identified, they will be checked to see whether there are any adverse restrictive covenants or rights in respect of the properties, which will need to be disclosed in the Certificate of Title. If these could affect value, we will also advise the Valuer.
If there are any restrictive covenants which have been breached, or any unknown restrictive covenants (where the Land Registry do not have any information on the restrictive covenants imposed on the property), Restrictive Covenant Indemnity Insurance may need to be put in place. If it does, we will obtain a quote for this. We will first need to identify the level of cover required by the Lender, which is usually the Market Value Subject to Tenancies (MV-STT).
(b) Matters within the Registered Provider’s Knowledge
The Certificate of Title will require us to raise enquiries of the RP or RSL and so we will request the RP or RSL to confirm that a standard set of statements is correct in relation to the properties. A copy of this standard set of statements is attached. If such confirmation cannot be given, we will ask the RP or RSL to supply details of the reasons for this.
The RP or RSL may also be asked to reply to specific enquiries, which arise as a result of matters disclosed by our investigations.
(c) Leasehold Properties
If the properties are leasehold, the Certificate of Title will require confirmation to be obtained from the Landlord that the service charges and rent have been paid up to date and that there are no breaches of any covenants in the Lease.
If the Lease requires consent to be given by the Landlord for a charge to be granted, this consent will need to be obtained before the Charge can be completed. The Lease may contain specific insurance requirements and we will need to check that these have been complied with.
(d) LLCI Only Searches and Local, Water, Environmental and Chancel Check Searches
We carry out LLCI Only Searches with the Local Authority on one property from every road in every scheme as soon as the Titles for the properties being charged have been identified, so that the planning history for the properties can be identified at an early stage.
Certificates of Title then usually require Devonshires to confirm that they have carried out Local, Water and Drainage, Environmental and Chancel Check and other relevant searches. It can be expensive to carry out all searches on a large portfolio of properties.
We will therefore seek to reduce this cost by asking whether representational Searches will be acceptable and, if so, on what basis. Most Lenders will accept a 10% sample of Searches and the requirement on Public Bonds is for a 2% sample of the entire portfolio to be carried out with 1 Search being carried out on every 20 units in a scheme (defined as being six units and more in a group) and Search Indemnity Insurance on street properties (defined as being less than five units in a group).
Local Authorities generally take between five working days to one month to process the Local Searches. It is therefore important that they are put in hand at an early stage. Please note, however, that Searches which are over six months old will generally only be acceptable if Search Indemnity Insurance is also put in force on all of the properties and, in respect of Searches which are over twelve months old, these will generally need to be renewed. The age of the Searches therefore needs to be borne in mind if delays occur.
Water and Drainage, Environmental and Chancel Check Search results are usually received within one to three working days.
Some Lenders and Bond Trustees will agree to accept Local, Water and Drainage, Environmental and Chancel Check Search Indemnity Insurance instead of Searches. This means that no Searches need to be carried out and indemnity insurance is put in place instead to protect the Lender or Bond Trustees against anything adverse which would have been revealed by Searches if these had been carried out. If a Lender or Bond Trustee does agree to accept such indemnity insurance, we will apply for a quote for this. The properties will be given a limit of indemnity which matches the relevant value attributed to them in the Valuation and this quote can therefore only be applied for when a copy of the Valuation has been received by us. The premium payable for each property will depend on the number of properties being charged as a discount is given if a lot of properties are being charged. If Lenders or Bond Trustees do agree to accept Local, Water and Drainage, Environmental and Chancel Check Search Indemnity Insurance, they will usually require this to be put in place in respect of all the properties to be charged and will not agree to accept this on a representational basis.
(e) Other Specific Searches
A number of other Searches may need to be carried out as well as the Local, Water and Drainage, Environmental and Chancel Check Searches as follows:
i. If the property falls within a coal mining area, a Coal Mining Search will need to be carried out with the Coal Authority. The Search results are usually received within two to three days.
ii. If the property is situated within a brine area, e.g. Cheshire, a brine search will need to be carried out. These can be carried out almost instantly.
iii. If there is anything with the title deeds which indicates that the property is close to a river, a Landmark Flood Search will need to be carried out.
(f) NHBC/Zurich/Premier Guarantee or Similar Cover
If the property is less than ten years old, the property should be covered by NHBC, Zurich Municipal, Premier Guarantee or other equivalent cover and evidence of this will need to be placed with the title deeds. If the Registered Provider is unable to produce this evidence some Lenders may require duplicate NHBC Certificates to be obtained. This is expensive and the NHBC can only issue this if we confirm the name of the Builder of the property and the plot number and scheme name of the property to them. If the property is covered by Zurich Municipal, Premier Guarantee or other equivalent cover, the RP or RSL will need to ask them to produce a duplicate Certificate so that we can place the duplicate with the title deeds.
Most Lenders will, however, accept confirmation that there is cover in place without requiring duplicate Certificates if the RP or RSL undertakes to obtain duplicates if this becomes necessary (i.e. if a claim needs to be made).
If no evidence of this cover is available, Indemnity Insurance can be put in force to deal with this, if required by the Lender.
(g) Planning Permissions and Section 106 Agreements
Copies of planning permissions for the erection or the conversion of the properties must be obtained together with copies of Section 106 or other Planning Agreements. We will ask the RP or RSL whether they can provide these. If they cannot, we can obtain them from the relevant Local Authorities. We will firstly try to obtain these from the Local Authorities’ Portals as these will be free of charge. If these are not available on these Portals, we will apply for these by E-Mail and chase by telephone. All Local Authorities charge different fees for these. Local Authorities are notoriously slow in providing copy planning permissions and Section 106 Agreements, usually taking between at least five to thirty working days to provide them, but in some cases taking several months. It is obviously cheaper and quicker if the RP or RSL is able to provide these. Evidence of compliance with all conditions in planning permissions which required formal discharge will be required, especially Contamination Conditions.
There are two main types of obligations in Section 106 Agreements, being positive obligations which need to be complied with, e.g. obligations to pay specified sums towards education, traffic calming works, landscaping, play areas and obligations to provide open space, play areas, etc, and obligations relating to affordable housing.
If a Section 106 Agreement contains positive obligations, a Lender will require confirmation from the Local Authority that all of the obligations have been complied with. If this cannot be provided, Indemnity Insurance may be available to cover this but it can be expensive and whether it is available will need to be determined by the insurance brokers on a case by case basis.
If a Section 106 Agreement contains affordable housing provisions, it should hopefully also contain a mortgagee exclusion clause which adequately protects a mortgagee – if no such mortgagee exclusion clause exists, or if it is inadequate, a Lender will only lend against the properties on an EUV-SH (Existing Use Value for Social Housing) basis.
The following should be checked when entering into Section 106 Agreements or acquiring sites which are subject to existing Section 106 Agreements:
1. There should not be any restriction on “disposing” of the properties as this catches a charge and the properties then cannot be charged at all;
2. Reference must be made to receivers appointed by a mortgagee (including administrative receivers) as well as mortgagees and chargees and to any administrator (howsoever appointed) including a housing administrator;
3. References must be made to enable successors in title to mortgagees, chargees and receivers to take free from the provisions of the Section 106 Agreement;
4. There should not be any reference to a mortgagee or chargee “lending money on the security” as this does not cover a Charge to a Security Trustee as the Security Trustee is the mortgagee but is not lending any money and the Lender to whom the properties are designated to is lending the money but is not a mortgagee;
5. Where the mortgagee exclusion clause is conditional on the mortgagee using reasonable endeavours to sell to another Registered Provider or the Council first, the following should be considered:
a. The period before the mortgagee can sell free must be no longer than three months in total;
b. The price at which the mortgagee is required to use reasonable endeavours to sell at must be sufficient to redeem the mortgage, including all accrued principal monies, interest and costs and expenses; and
c. The requirement to first try to sell to another RP or RSL or the Council must only require the mortgagee to use “reasonable” endeavours to sell, not to use “best endeavours” or “all reasonable endeavours”.
The ideal mortgagee exclusion clause in a Section 106 Agreement is:
“The [affordable housing] provisions in this Agreement shall not be binding on a mortgagee or chargee (or any receiver (including an administrative receiver) appointed by such mortgagee or chargee or any other person appointed under any security documentation to enable such mortgagee or chargee to realise its security or any administrator (howsoever appointed) including a housing administrator (each a Receiver)) of the whole or any part of the [affordable dwellings] or any persons or bodies deriving title through such mortgagee or chargee or Receiver”
An ideal conditional mortgagee exclusion clause is:
“The [affordable housing provisions] in this Agreement shall not be binding on a mortgagee or chargee (or any receiver (including an administrative receiver) appointed by such mortgagee or chargee or any other person appointed under any security documentation to enable such mortgagee or chargee to realise its security or any administrator (howsoever appointed) including a housing administrator (each a Receiver)) of the whole or any part of the [affordable dwellings] or any persons or bodies deriving title through such mortgagee or chargee or Receiver PROVIDED THAT:
(1) such mortgagee or chargee or Receiver shall first give written notice to the Council of its intention to dispose of the [affordable dwellings]; and
(2) shall have used reasonable endeavours over a period of three months from the date of the written notice to complete a disposal of the [affordable dwellings] to another registered provider or to the Council for a consideration not less than the amount due and outstanding to the mortgagee or chargee under the terms of the relevant security documentation including all accrued principal monies, interest and costs and expenses; and
(3) if such disposal has not completed within the three month period, the mortgagee, chargee or Receiver shall be entitled to dispose of the [affordable dwellings] free from the [affordable housing provisions] in this Agreement which provisions shall determine absolutely”.
(h) Building Regulations Completion Certificates
If the property is new build or if significant work has been carried out in the last ten years, Building Regulations Completion Certificates for the properties must be obtained either from the RP or RSL or the relevant Local Authority. The Local Authorities do charge for this service and it is therefore obviously cheaper and quicker if the RP or RSL is able to provide these.
Once the Certificate of Title has been completed and approved by the Lender’s solicitors, we will send copies to the RP or RSL and to the Valuers for the RP or RSL to confirm that the contents of it are true and accurate and for the Valuers to confirm that nothing in it will affect their Valuation.
Delays in obtaining the previous items and suggestions to avoid this and to achieve stress-free securitisation
The delays of Local Authorities in providing copy planning permissions, copy Section 106 Agreements, copy Building Regulations Completion certificates, confirmation of compliance with contamination conditions in planning permissions and confirmation of compliance with Section 106 Agreements can be very frustrating. The way forward is to train up development staff at RPs and RSLs to put together a package of documents and confirmations at the time of acquisition of a scheme (which the development staff should have in their possession at that time) to be provided to finance to be kept ready for sending with instructions to charge the properties when the properties are required as security.
A DEV1 Form is attached to assist with putting this package together and the Partners in the Team (Sharon Kirkham, Chris Drabble, Saghar Roya and Richard Sharpe) give regular security training sessions to promote and explain the use of this form. Please see the separate section on “Security training” in this Guide.
Another way of avoiding delays is for the RP or RSL to instruct us to get all of their uncharged properties ready for charging so that we have a pool of properties ready for charging from which the RP or RSL can choose properties to secure to a particular facility which can be completed very quickly. For further information on this, please contact any of the Partners in the Team. This will also assist RPs and RSLs in putting together their Asset and Liability Registers.
We also recommend that you use our service of reviewing mortgagee exclusion clauses in s106 agreements, transfers, leases etc. before you acquire sites or enter into such documents to ensure that these are adequate for a mortgagee to lend on an MVT basis so that you maximise your funding capacity. For further information on this, please contact any of the Partners in the Securitisation team.
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