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The Legal Problem

In the mainstream market joint representation for the borrower and lender is common. Navigating this market is not

easy; especially because the past three to four years have seen it undergo a sea change in what bridging means. Pre-credit crunch short-term finance was rarely used to bridge residential development deals because there were 100% plus loan to values on offer cheaply in the mainstream market. Buy-to-let was frothy and picked up the tab for small and medium sized property developers and investors. But since 2008 things have changed. Bridging is not about non status lending of last resort. It is shouting from the rooftops that it’s about professional property investment. Understandably it’s taking time

for the market to adjust. The legal side of bridging is perhaps only just waking up to this.

PROCESS That rate of change, or change at all, is difficult to quantify because of the very nature of the bridging market. If there is anything to say about bridging legal processes it’s that there is no process. Every lender does the legal bit its own way, with its own lawyers. Sometimes those lawyers are in house, sometimes they’re partner firms, sometimes they represent the lender only and sometimes they will represent the client too. Steven Nicholas, chief executive of

Tiuta, explains they have their own in-house legal team who ensure all documents and requirements are in order before the release of funds. “We only rely upon the solicitors acting for the applicant to provide a certificate of title and certified ID documents in line with the Joint Money Laundering Steering Group and Solicitors Regulation Authority requirements,” he explains. “Brokers will often work closely with both our in-house legal team and the applicants’ solicitors to ensure the


transaction goes as smoothly as possible.” Ray Cohen, managing director of compliance firm Jackson Cohen, says bridging is a higher risk product and there is a danger in not having clear independent legal advice on the matter for the borrower. It’s for that reason that the market norm is to have two sets of lawyers on any one deal. “The lender needs to ensure their position is fully protected and will want to use their own vetted solicitor who understands their exact requirements and can handle everything quickly and to the required standard,” he explains. “It is potentially higher risk for lenders to allow joint legal representation and even more so if using the borrowers solicitor.” But there are those who would

have us believe that this is a case of perspective, not fact. Founding partner of Goldsmith Williams, Eddie Goldsmith, explains that it is the historical attitude to risk that has meant the bridging sector insists upon separate representation. “Bridging isn’t really so very different from mainstream mortgages except in one obvious respect: urgency,” says Goldsmith. “It’s for this reason that in the past it


The ASTL provides a list of solicitor firms that are associate members but brokers recommend:

„ John Symns, Pure Law, Brentwood

„ Alan McKendrick and Mark Wilson, Wilson McKendrick, Glasgow

„ Bermans, Manchester „ Brightstone Law, Borehamwood „ CKFT, London „ Rohit Sthalekar, LMK Law, Stanmore

„ EAD, Liverpool

was thought best to give borrowers separate legal representation because of the higher cost of bridging. They needed to be sure the borrower understood what they were getting themselves into.” There is another thing that binds all bridging deals together. Risk. While process and intricacies of each bridging deal may be multifarious, risk is the thing every legal relationship with bridging has in common. The lawyer is there to help lenders protect themselves from landing in the proverbial. And equally, to protect borrowers in themselves from jumping in eyes shut and headfirst. For lenders that means

lawyers must ensure that the title underlying the property is satisfactory for the deal they’re structuring so they will be able to recover the monies they lend should the borrower default. For borrowers there is the management of monies, transfer of title, redemption of any existing financial arrangement and the explanation of what will happen should they default so they don’t turn around and try to sue. “There are certain characteristics of the bridging market that mean that risk is higher than in the mainstream market,” says Goldsmith. “People have short-term memories and because bridging is relatively expensive finance often arranged quickly lenders want to be sure borrowers won’t turn around at a later date and say they weren’t aware of the punitive rate they’d have to pay if they default or that the property might be repossessed. It’s the lawyer’s duty to point this out to the borrower.”

ADVICE AND AWARENESS This duty is what many in the bridging industry are in a flap about. Advisers say that in some cases lawyers with little or no experience of bridging and even the availability of property finance with “pass comment” on the client’s choice of

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