Rural Estates Newsletter Spring 2021 - Flipbook - Page 16
6 – Choosing land to charge
Susanna O’Leary
Now, more than ever, rural estates are looking to raise capital, whether
for diversification projects or other purposes. One option is to obtain
bank finance and offer land within the estate as security for the loan.
However, care needs to be taken in selecting the land offered as
security. Choosing the right land at the outset avoids unnecessary
complications, wasted costs, and will pay dividends in terms of the
speed and ease of drawdown.
Who owns the land to be charged?
Ownership of some estates is split between different members of the same family, held
under different trusts or even held by special purpose vehicles. It will generally be easier
to offer a lender security over land which is all held within a single ownership structure. If
the land to be charged is owned by different people or entities, there may be cross rights
and the security will also be more complicated, which one would usually wish to avoid.
If the land is held by an overseas company, a legal opinion from a lawyer in that overseas
jurisdiction will likely be required by the bank. This can add to the cost and complexity of
obtaining the loan.
Access rights and services
You should select land which can be accessed and used autonomously and
independently of other estate land that is not being charged. This might be because
the land to be charged adjoins the public highway or because it already benefits from a
formal easement over the relevant access roads and tracks. Alternatively, you can offer
the bank security over a larger area of land which includes both the private access road
and the land through which the key services pass.
If charging the private access road is not an option, you might contemplate granting a
right of way over it. However, this will not work; a landowner cannot grant a right of way
over land (which it owns) for the benefit of land being charged (which it also owns).
Dwellings that depend on private water pipes or supplies also make for problematic
security and are best avoided if possible. The problems that Katy Grylls writes about on
the previous page are as much of a concern for a bank as they are for a buyer.
We have seen several transactions fail because access rights and services were not
properly considered at the outset meaning that, many weeks later, different land had to
be offered as security.
Occupied or unoccupied?
Whatever the form of occupation (residential tenancy agreement, commercial lease or
grazing licence), the bank will want to see the paperwork - ALL the paperwork! So, you
need to make sure the occupation is clearly documented and up to date.
If any part of the charged land is occupied pursuant to a residential tenancy, the bank will
need to check that all the required documents have been served on the tenant before
the tenancy was granted, that (where applicable) any deposit is protected correctly
and the right to rent checks have been carried out. If the land to be charged includes
accommodation for estate staff, you will need to provide details of their employment
contract and possibly also a licence to occupy.
16
Rural Estates Newsletter
Spring 2021
