Steps Lenders Can Take During COVID-19
The COVID-19 pandemic has led to a testing time for the property and lending industry and one of Strettons Registered Property Receivers, Paul Joseph has set out a few thoughts.
Receivers are often thought of as only being useful to lenders during difficult times. Experience has shown the receivership team at Strettons that it is often better to provide pragmatic advice to lenders early in the lending cycle and before loans go over-term or in default.
Strettons receivership team handles all types of commercial, residential and development properties throughout England and Wales.
With almost a century of varied property experience in the receivership team, we can also draw on the expertise and experience of other teams in the firm including litigation support, valuation, property management, agency, leasehold reform and auctions.
Below are some considerations for lenders during these difficult times:
(I) SEEK NEW LENDING OPPORTUNITIES
Several major lenders have stopped lending, which has created opportunities for others, and several of our lender clients are willing to lend and ‘cherry-pick’ the best deals.
(II) INSURE THE PROPERTY
Paying insurance premiums is often the first thing that borrowers seek to avoid during difficult times. Lenders need to ensure that the property is insured and a specialist receivership insurance team can help with immediate cover – no cover could mean no security whatever the documents say.
(III) COMMUNICATE REGULARLY WITH BORROWERS & PAYMENT HOLIDAYS
It is more critical than ever to seek to ensure that the borrowers create and maintain a payment plan if in difficulty.
Payment holidays have been much publicised in the national press. These can be critical during this period, but the borrower must be fully aware that the interest will still be due at the end of the payment holiday. Hence, the lender and borrower need to work together. The rule seems to be that some regular payment to maintain a pattern is better than none.
(IV) DIFFICULTIES GETTING POSSESSION
During these difficult times, there has been an almost complete stop on possession proceedings.
On 27 March 2020, the Master of the Rolls and the Lord Chancellor signed a new Practice Direction (51Z) in relation to possession proceedings during the Coronavirus pandemic. This follows and complements the Coronavirus Act 2020 emergency legislation to prevent imminent evictions and delay possession proceedings.
The Practice Direction was effective immediately from 27 March 2020 and the main changes are:
- All proceedings for possession brought under CPR Part 55 and all proceedings seeking to enforce an order for possession by a warrant or writ of possession are stayed for 90 days from, 27 March 2020:
- Claims for injunctive relief are not subject to the stay set out in paragraph 2 of the Practice Direction.
Whilst the Direction ceases to have an effect on 30 October 2020 it does not impact properties which are vacant or where vacant possession was obtained prior to 27 March 2020.
Another option is to seek to negotiate with the occupier and their solicitor to see if they will vacate voluntarily. If the occupier is the borrower, in most cases this will reduce the costs as otherwise, interest will accrue. This is an option because repossession can continue where the borrower agrees that it is in their best interests.
(V) DIFFICULTIES IN SELLING
During the COVID-19 crisis, the UK government has advised buyers not to exchange contracts for residential property due to an increasing number of logistical challenges. This includes the fact that most removal firms are not working and moving home does not fall under the government’s essential reasons for leaving home:
Some key points include:
- Homebuyers and renters should, where possible, delay moving to a new house while measures are in place to fight coronavirus.
- If contracts are exchanged and the property is occupied then parties should work together to agree a delay or another resolution. In many instances, mortgage offers can be extended.
- If the property is vacant then the move can happen but there will of course be logistical issues.
- In these instances, it is better for both buyer and seller to seek to come together to find amicable solutions.
All of which poses issues for borrowers looking to exit a loan, receivers if appointed, or lenders selling as mortgagees.
In practice, however, Strettons receivership team and the solicitors we work with are still seeing several property sales exchange contracts and complete. There is still a market and people keen to buy, particularly vacant properties or those being bought as an investment.
For those in funds, this is a good time to buy and this is clear in the continued auction activity, a sector of the market that has adapted immediately to the crisis by switching from ballroom to online sales. The next Strettons auction is on 7 April 2020 and will be fully online.
(VI) APPOINT A RECEIVER
If the borrower is in default or over-term, lenders may wish to consider appointing a receiver, even though their actions may be limited. These may, of course, have been cases which were always likely to be in difficulty even prior to COVID-19 and the lockdown.
A Receivership appointment can still happen and bring immediate advantages during this difficult time:
- If the property is vacant there is no business rates and council tax – this can be a significant benefit for the borrower.
- If the property is income-producing, then as receivers we can collect the rent.
As opposed to the social isolation we are all faced with, there may actually be ways for lenders, borrowers and those in the property industry to work with one another to continue to progress through these difficult times.