June 2018
By Daniel Fireman, head of banking & real estate finance at Howard Kennedy
Due to the repeat nature of instructions to solicitors from specialist short-term bridging and development lenders, most lenders are more than adequately represented by specialist solicitors and have a regular panel to turn to according to the nature of each loan. Many brokers and lenders do agree though that if more borrowers – wishing to source funds in the specialist space – were to instruct specialist solicitors, the speed and efficiency with which transactions are processed could be substantially improved.
The industry is well aware of the recurring theme that borrowers' day-to-day, or occasional, solicitors do not have the experience or resources to efficiently facilitate specialist lending transactions, or that due to their areas of specialism such solicitors are simply not suitable.
The nature of specialist lending is such that inexperienced solicitors can be resistant to deal with unfamiliar lender requirements on an expedited basis, and those unfamiliar with these requirements often seek to persuade lenders and lenders’ solicitors to waive or vary them. While these pleas are usually met with rejection, time is wasted and transactions are delayed.
Conversely, it can also be the case that where a borrower engages a large, full-service firm with expertise in acting on substantial banking transactions, the need for expediency – which underpins most specialist lending transactions – may not be fully addressed or appreciated. Such a firm may, of course, expect to be involved in negotiating the fine detail of the loan and security documents. Most specialist lenders either impose their own form of core facility and security documents on the borrower, or will agree to only limited alterations to such documents. Sometimes the more sophisticated solicitors will seek to impose ‘loan market association’-style provisions to the loan and security documents, or to engage in heavy negotiations. It is rarely appropriate or efficient in terms of either time or cost to accommodate such practices when processing specialist finance transactions, but inevitably, delays occur and costs mount while these issues are being resolved.
Size is certainly no guide to quality of service, but most specialist finance lenders require their borrowers to be represented by a firm with a minimum number of regulated principals, and most brokers and lenders recognise through experience that some firms are better suited than others to effectively represent borrowers in specialist finance transactions.
Recently there has been much discussion around this at brokers', lenders' and jointly attended trade association meetings, considering the formulation of an approved list of solicitor firms to whom borrower applicants might be referred. The firms selected would need to have demonstrated an appreciation of the nature of the specialist lending industry and an ability to properly guide and advise borrower clients, while understanding and meeting the requirements of the lenders. While it is clearly inappropriate for lenders to have any influence over a borrower's choice of solicitor, brokers advising and representing borrowers on specialist funding applications are well placed to explain to their clients the advantages of engaging a suitably experienced solicitor from an approved source. The availability of an approved list of such solicitors is therefore likely to be considered a welcome initiative by industry stakeholders.