Would you love to have a streamlined and efficient property charging process to ensure that you are ready to optimise financial opportunities?
When seeking new borrowing, the property charging process is often the ‘knot’ that can prevent timely completion and efficient access to liquidity for housing associations. With mergers and refinancing, this simply increases the depth and breadth of the challenges that come with the property charging process.
The property charging responsibilities within housing associations have often been, and continue to be for some, an additional responsibility to an already busy operational role in the Treasury team.
Requests for copies of documents and other queries that are raised internally, as a result of the property charging transaction, are often not given the attention that they require which brings protracted delays to completion of the loans/bonds, higher costs and not optimising on financial opportunities.
Understanding why
Over these property charging transactions, housing associations (as borrowers) often find themselves with high and/or duplicated costs due to copies of documents that should already be held internally. For example, legal documents, planning documents – all of which would have been obtained either at the point of acquisition or over the course of the development programme and post-development.
There is often a disconnect through all of these transactions which leads to a disjointed property charging process. Where these documents are obtained at the point of acquisition, development, or post-completion, they are saved to various folders and not held centrally. This is the break in the chain between Development and Finance/Treasury – i.e. from where a site is developed and the property charging process – that contributes to the property charging ‘knot’.
Regulatory Compliance Gap
Common challenges in the property charging transactions tend to be:
- Inaccurate or missing legal ownership information
- Missing planning documents
- Lack of evidence from the local authority to confirm compliance of planning obligations
- Missing final building warranty or guarantee certificates
- Inaccurate data on retained shared ownership percentages
A misconception is that this can be seen to be a ‘Treasury/Finance issue’. However, this highlights a more deep rooted challenge within the organisation.
From a regulatory perspective, as part of the ‘Assets and Liabilities Register’ requirement, housing associations should already be embedding robust processes and procedures (with appropriate accountability and monitoring KPIs) through every phase of the property development process. This will naturally lead to a more efficient and streamlined property charging process.
Capturing the data and documents at source, flowing from land and development to asset management and treasury, prevents the reactive need for law firms to be appointed to obtain the information that should already be kept internally.
The comfort blanket of appointing law firms to carry out this reactive task is only a temporary fix for that transaction. As a sector, the need to build more confidence in ‘knowing and understanding its homes’ is critical. To be able to fix this permanently, it requires the commitment and investment to strengthen the infrastructure that will benefit more than just the property charging process.
By being better prepared before appointing the law firms to carry out the required legal due diligence, this ensures that costs do not spiral and a more efficient and streamlined completion.
Skills and resource
Some housing associations benefit from a dedicated resource to focus purely on ensuring that the property charging process is efficient and effective. Other housing associations struggle to obtain internal buy-in for a dedicated resource, and if it is justified – how do you find someone who understands what needs to be done?
When thinking about the property charging process, this should not be sat in silo from the rest of the organisation. This process highlights the greater need for collaboration across the organisation and the ask of law firms when instructing them.
When thinking about legal instructions that go out to law firms, are these carried out in silo? An example of this is where the Development team instruct a law firm to agree the s106 agreement. Two points:
- Is the Development team also instructing to ensure that nothing will restrict future and potential borrowing value?
- Does the law firm appointed have the property charging expertise to be able to confirm this?
By not carrying some of this thinking out puts the housing association on the back foot before the next deal is done as it restricts the borrowing value before the property charging process has even started. Open dialogue and greater transparency on skills and expertise is critical to ensure best possible borrowing value for each new site.
Housing associations have an opportunity to create a proactive property led approach to future borrowing. This requires investment in skills and resource and not just on a reactive basis – when the next deal is required, but now.
Some housing associations are charging properties on an ‘unallocated’ basis to try and future proof these challenges. This is fine, but does not take away from your need to ensure that the internal infrastructure is in place. Be prepared for those times where refinancing is required, ensure that if new due diligence is required – you are equally able to do this at an equally expedited pace.
Now is the time to proactively untangle the property charging knot.
