Lending in Lockdown

We are living in unprecedented times, and the last few weeks have presented a number of challenges to our lender clients, requiring them to rethink and adapt their working practices. This article is not intended to be an exhaustive analysis but more a flavour of the types of issues which we have encountered in acting for our lenders, and the key solutions that have come about from some creative thinking.

Execution formalities

COVID-19 has meant that traditional means of execution which lenders are accustomed to are now almost impossible. Signing documents in the presence of the borrower’s solicitors is now a distant memory, and moreover, signing in the presence of an ordinary and independent witness is not without its challenges during the lockdown period. What solutions are available?

• If the borrower is a corporate entity with at least two directors, or a director and company secretary, each director (or each of the director and company secretary) may separately sign the engrossment and there is no requirement for a witness. This assumes of course that the original can be posted or couriered to the other party, and then returned to the lender’s lawyers prior to completion once validly signed by both signatories. The usual corporate authorisations including board minutes, shareholder resolutions and director certificates can be validly executed electronically.
• Whilst different variations of electronic signature have been in use for some time this is not necessarily a satisfactory solution in the context of legal charges which require registration at Land Registry. There is one exception in the case of re-mortgages where the borrower is an individual. Some lenders have adopted the Land Registry’s electronic mortgage signing process with no witness requirements (see https://www.gov.uk/government/publications/hm-land-registry-sign-your-mortgage-deed). The lender would need to submit an ACD application to the Land Registry in advance and obtain approval to enable them to use this service. We understand it could take a few weeks to obtain this approval.
• In the absence of the above two scenarios, valid execution of a mortgage deed will be required in the presence of an independent witness who is over the age of 18, not party to the deed and does not have any personal interest in the provisions of the document. Furthermore, in order to witness a document a person must record on the deed itself that they have observed the execution by the signatory, so it will not be sufficient for the witness to have been ‘present’ only via videolink and not in person. Some of our clients are requiring a Zoom call to take place between the borrower’s solicitors and the borrower at the same time that the deeds are being executed and for the legal advice to be provided during the call and immediately prior to execution.
• In the case of Offer Letters/Facility Agreements it will depend on whether these are drafted as deeds (which require a witness) or as simple contracts (where no witness is required). In the case of deeds, given that Facility Agreements are not registerable, they are capable of being signed electronically and many lenders are relying on established electronic signature platforms such as DocuSign to facilitate this, and provide the best available comfort that the correct signatory of their counterparty has signed the relevant documents.   
• In relation to offshore borrower entities, in order for contracts to be governed by English Law the overseas entity must execute documents in accordance with the laws of the territory in which they are incorporated, and a legal opinion will be required. It is therefore difficult to see how any ‘relaxation’ of the execution formalities can be achieved in this context notwithstanding the Covid-19 restrictions. 

Solicitor Advice Certificates/ILA

Fortunately, many lenders (particularly in the short term lending space) have relied on videolink for some time (whether via Skype, Facetime or Zoom) as a means of recording the fact that legal advice was provided by the borrower’s solicitors to an individual borrower in relation to the security documentation. This has arisen predominantly where the borrower is overseas and it has not been practical for face to face advice. In such circumstances the solicitor’s advice certificate (where necessary) is simply adapted to confirm that whilst advice was not ‘face to face’, the borrower’s solicitor nevertheless provided the advice via video call and is satisfied that the advice was indeed given to the correct party and that there was no evidence of undue pressure during the call. Where possible, this can also be extended to record the fact that the solicitor ‘saw’ the borrower sign the security documents via the video link call.

KYC Verification

This has also proven to be a challenge in circumstances where the borrower’s solicitors have not previously had sight of the borrower’s original ID and certified it. Many of our lender clients have agreed a process whereby, in conjunction with the videolink call, the borrower and their solicitor carry out the following:

• borrower to present their face and passport/driving licence together in one clear image to allow the borrower’s solicitor to take a screen shot.
• borrower’s solicitor to certify the ID photograph as a true likeness to the borrower based on the video call (the usual passport checks are separately carried out).
• The above process is repeated in relation to proof of address. 

Land Registry processes

Land Registry services are slower than usual and to date the Land Registry anticipate disruption to the following services:

• New applications
• Bankruptcy searches
• Land charges searches
• Local land charges searches
• Mapsearch
• Official copies of documents
• Index map searches
• Official searches of part/whole

On a positive note Land Registry have extended all cancellation dates until further notice and will aim to grant requests for extensions. They will also no longer reject applications where identity evidence has not been provided and will instead raise requisitions in this regard.  

Fraud Risks 

Whilst nothing like this has ever happened, in AML terms we have of course seen the trend that when the economy suffers, fraudsters see the turmoil as an opportunity. As solicitors acting for lenders we are trained to have regard to this risk especially as there is a large community of highly intelligent potential launderers out there who will invest a lot of time and thought into ML attempts. As lenders perhaps look to ‘relax’ some of their usual processes and requirements in order to get deals over the line during this challenging time, it is of course crucial that they have this risk in mind and seek to mitigate it as much as possible. We are fortunate at Seddons to have decades of experience in acting for lenders and our real estate finance team will wherever possible guide the lenders in looking out for and identifying fraud attempts.

Should you have any questions regarding the above information, or if you need clarity on any complex aspect of Real Estate Finance, please contact Simon Noonoo at [email protected] or your existing contact within Seddons’ Real Estate Finance team.