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Valuation and Lease Issues

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As part of a loan secured on property, the Bank insists on having an independent valuer prepare a detailed report. We see it as part of our function to analyse that valuation report, whether for the Bank or the borrower, and to make sure that it accurately reflects the identity of the property owned by the borrower and also the current uses and tenants at the property. If the property has tenant income, clearly the accuracy of the lease terms notified to the valuer is critical to the outcome of his or her report.

Accordingly we liaise with the valuer and the borrower’s managing agent to ensure that any discrepancies in the valuer’s report are identified at an early stage and not left until just before the loan is drawn down.

Where the property being charged to the Bank is a long lease, we look carefully at any “onerous covenants” (obligations which restrict the use of the property) which might affect current use or future redevelopment and therefore have an impact on value. Banks also have very clear “red lines” as to the minimum length of a leasehold property for their security. We advise borrowers at an early stage to review the possibility of extending the lease as this can be a lengthy, costly process.

Our banking experts aim to form part of a team with the valuer, the quantity surveyor on building projects and other relevant experts. There is no substitute for identifying problems at an early stage to lead to a successful outcome at a lower cost.

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