09/02/2018 • news
Why choosing the wrong legal partner could have ‘drastic’ results
Complex loans such as bridging finance for commercial property transactions require plenty of specialist knowledge from a legal partner.
As well as the terminology, these transactions usually necessitate a quick turnaround in order to complete a property purchase or refinance.
“We are regularly approached by borrowers (and their concerned brokers) who need help when a matter has either slowed down or met legal complications, usually as a result of unresponsive conveyancers,” said Harry Tuke, partner at MW Solicitors.
Harry explained it should never get to this stage and the easiest way to avoid this was to ensure the borrower instructs a specialist solicitor to act quickly.
Harry Peradigou, partner at Brightstone Law, said the smoothest deals almost always involved solicitors who had dealt with specialist loans before.
“The difference between a solicitor that has never dealt with such loans before and those that have is almost immeasurable.
“Each lender has different requirements, but the differences are not vast.”
“Getting the right legal partner is akin to getting the right set of tyres on your car,” said Rob Jupp, CEO at Brightstar.
“If you chose the wrong set, your journey will at best be uncomfortable, bumpy and take longer.
“At worst, you could end up in a ditch.
“I’ve lost count [of] the number of solicitors who believe that conveyancing is conveyancing irrespective of the security.”
Delays
Emma Cox, sales director for Shawbrook’s commercial property team, added: “Having the wrong legal partner can cause lengthy delays in reaching completion within the desired timescale.
“With a proven and trusted partner who is familiar with your process and documentation, the journey is far more efficient for all stakeholders – especially the customer.”
Mehar Patel, head of legal at Lendy, felt that the borrower having the right legal partner was vital.
“If a borrower instructs solicitors lacking in experience and understanding of commercial finance matters, and they are unable to turnaround information urgently, then they will fail to complete on the deal within the timescale agreed between the borrower and lender.”
Craig Reiselson, underwriter at Market Financial Solutions, added: “A wrong legal partner can have drastic results, both financially and otherwise.
“A sluggish conveyancer can severely delay a bridging transaction or even cause the deal to fall through as the whole objective is to successfully complete the transaction within the timeframes.
“Failure to provide adequate, thorough advice regarding details such as the leasehold or any technical issues with the property can have severe consequential affects, including issues selling, renting, converting or using the property for what it was intended for.
“This can mount up to huge costs, which could have easily been avoided had the partner had the experience and right knowledge.”
James Bloom, managing director of short-term lending at Masthaven, felt that, in many cases, clients have used the same solicitor for a number of years, for a variety of transactions.
“However, these solicitors have often never had to deal with short-term borrowing before.
“Securing these funds is a very different process to obtaining a mortgage, so it is absolutely critical to obtain specialist advice before proceeding.”
How to limit problems
Brian Rubins, executive chairman at Alternative Bridging Corporation, felt that when organising a commercial loan, borrowers must warn their solicitors to be prepared.
“Brokers, warn your clients in advance that their solicitors will be required to give the lender’s solicitor an undertaking for fees.
“Do not wait to be asked, but ensure this occurs at outset.
“Be prepared, work with an experienced lender with proven ability to deliver and delay will be avoided.”
Simon Chapman, relationship director at Amicus Property Finance, said: “When it comes to the legal specialists involved, we often see the impact of the client choosing a conveyancing solicitor over a specialist property solicitor.
“Often, less experienced clients will choose to work with their default local solicitor, whereas we, of course, call on one of our select panel of [specialist] property solicitors.
“More experienced developers and clients will seek to use a specialist on both sides, as they are aware of the benefits to the transaction.
“That’s not to say all local firms are inexperienced, though.”
Jon Salisbury, managing director at Ortus Secured Finance, added: “Borrowers need genuinely independent representation from a lawyer they trust, therefore lenders need to be careful about making recommendations.
“At Ortus, our policy is not to do so.
“However, it is only fair to [tell] borrowers that bridging needs speedy legal execution and ‘normal’ timescales are rarely quick enough.
“Therefore, it is vital borrowers select lawyers who can give the deal their immediate and dedicated attention and, ideally, one with some experience of executing a bridging deal.”
How can brokers help?
“Experienced brokers can recommend trusted legal professionals with expertise in the commercial space,” explained Emma.
“Also, when a broker stays close to a deal, they will naturally add significant value and help rectify any pressing issues.”
Matthew Tooth, CCO at LendInvest, felt most brokers would know that the cheapest conveyancer wasn’t always the best and would appreciate value for money, service and commercial expertise.
“Brokers keeping up a dialogue with their legal partners post completion to understand what went well and not so well is the best way to ensure they remain well informed of the process, recognise the virtues of the best lawyers and the vices of the worst, and are therefore best placed to advise their clients of the pitfalls of choosing the wrong legal partner.”
Mehar concluded: “…Brokers should analyse over time which lawyers have acted for their own borrower clients who dealt with deals swiftly and smoothly and build their own panel of solicitors who they can recommend.”