How to Refinance a Commercial Property?

If you own a commercial property and your current mortgage term is coming to an end, refinancing could be an excellent way to secure a better deal or release equity. But unlike residential remortgaging, refinancing a commercial property comes with its own set of complexities.

Here, we’ll explore the refinancing process from a commercial conveyancing point of view, detailing the steps involved, legal considerations, and how a conveyancing solicitor can help you throughout the process.

What is Commercial Refinancing?

Refinancing a commercial property means replacing your existing mortgage with a new one, either from your current lender or a new provider. Businesses typically refinance to:

• Secure lower interest rates and reduce monthly payments
• Release equity tied up in the property
• Extend the mortgage term for better cash flow
• Switch to a more favourable lender offering better terms

A commercial conveyancing solicitor plays a key role in this process, handling the legal aspects, ensuring a smooth transfer of the mortgage, and addressing any issues that may arise during the refinancing.

The Role of a Commercial Conveyancer in Refinancing

The commercial conveyancer acts as your legal representative during the refinancing process. Their role includes:

• Reviewing the title deed to ensure there are no legal restrictions that could affect refinancing
• Liaising with the lender to provide all necessary documents and information
• Ensuring compliance with the lender’s requirements, such as checking the lease agreements if the property is rented out
• Handling legal paperwork and registering the new mortgage with the Land Registry

By involving a commercial conveyancing solicitor early in the process, you can avoid delays and ensure that all legal matters are taken care of promptly.

How to Refinance a Commercial Property: Step-by-Step Guide

1. Assess Your Current Mortgage Situation

Before you begin the refinancing process, review your existing mortgage agreement. Check when your current deal ends and whether you will incur any early repayment charges for switching lenders. It’s important to time the refinancing correctly to avoid unnecessary fees.

2. Calculate Your Loan-to-Value (LTV) Ratio

The LTV ratio is a crucial factor in refinancing. It measures the loan amount against the current market value of your property. If the value of your commercial property has increased since you took out the original mortgage, your LTV ratio may have improved, making you eligible for better rates.

Your conveyancing solicitor can assist in this process by arranging for a professional valuation of the property, a requirement by most lenders.

3. Prepare the Necessary Legal Documents

When refinancing, your new lender will require a range of legal documents to assess your eligibility, including:

• Title deeds: These confirm ownership and any restrictions on the property.
• Lease agreements: If the property is rented out, the lender will need to review the lease terms and rental income.
• Company financials: These documents provide an overview of your business’s profitability, helping the lender assess your ability to repay the mortgage.

A commercial conveyancer will gather and review these documents, ensuring they meet the lender’s requirements.

4. Engage with a Commercial Conveyancing Solicitor Early

It’s crucial to instruct a commercial conveyancing solicitor as early as possible in the refinancing process. They will handle the legal side of the transaction, including:

• Carrying out property searches to identify any potential issues, such as planning restrictions or environmental risks
• Reviewing the lender’s terms and conditions, ensuring they align with your business goals
• Communicating with the lender’s legal team, acting as your representative to avoid misunderstandings or delays

5. Apply for the New Mortgage

Once your solicitor has completed the necessary checks and gathered the required documents, you can proceed with the mortgage application. This involves:

• Submitting a formal application to your chosen lender
• Providing financial statements and proof of income to demonstrate your ability to meet repayments
• Waiting for the lender’s decision and agreeing on the terms of the new mortgage

Can You Release Equity When Refinancing?

Yes, one of the main reasons businesses choose to refinance their commercial property is to release equity. Equity is the difference between the property’s current market value and the outstanding mortgage balance. By refinancing, you can unlock this value and use the funds for:

• Investing in new business ventures
• Purchasing additional properties
• Paying off high-interest debts
• Improving cash flow and liquidity

However, most lenders require you to retain at least 25% equity in the property after refinancing. Your commercial conveyancer will help you assess the equity available and advise on how much you can realistically release.

Legal Considerations When Refinancing

Refinancing a commercial property involves several legal considerations that differ from residential remortgaging:

• Title Checks: Your conveyancing solicitor will review the property title for any legal issues that could affect the refinancing, such as restrictive covenants or existing charges.
• Lease Reviews: If the property is tenanted, the lender will want to see lease agreements. The conveyancer will check these documents to ensure they meet the lender’s criteria.
• Legal Due Diligence: The solicitor conducts due diligence, including property searches and reviewing planning permissions, to ensure there are no legal complications that could delay or hinder the refinancing process.

What Will Your New Repayments Look Like?

Your new monthly repayments will depend on the loan amount, interest rate, and the term of the mortgage. Commercial mortgage rates typically range from 3.5% to 6%, but the exact rate you receive will depend on:

• Your LTV ratio
• The financial health of your business
• Market conditions and lender requirements

Your commercial conveyancer can assist in estimating the potential repayments and help you choose the best mortgage terms for your business needs.

Why Work with a Commercial Conveyancing Solicitor?

The process of refinancing a commercial property can be complex and time-consuming. Working with a specialist commercial conveyancing solicitor offers several benefits:

• Expertise: They have in-depth knowledge of commercial property law and can navigate the legal complexities of refinancing.
• Efficiency: They handle all the legal paperwork, ensuring a smooth and efficient process.
• Protection: They identify and address potential legal issues early on, protecting your interests throughout the refinancing.

FAQs

1. How long does it take to refinance a commercial property?

The process typically takes 6 to 8 weeks, depending on the complexity of the transaction and the lender’s requirements.

2. Can I refinance if my business has a poor credit history?

Yes, it’s possible. Some lenders specialise in working with businesses with less-than-perfect credit, though the terms may be less favourable.

3. Do I need a deposit for a commercial remortgage?

No additional deposit is usually needed if you have built up enough equity in the property.

4. Can I switch to a new lender when refinancing?

Yes, you can switch lenders to secure a better deal, but be aware of any early repayment charges from your current lender.

5. What documents will my solicitor need for refinancing?

Your solicitor will require title deeds, lease agreements, company financials, and any existing mortgage agreements.

Final Thoughts

Refinancing your commercial property can be a smart financial move, helping you reduce monthly payments, release equity, and secure better terms. However, it’s essential to approach the process with a well-prepared strategy and the guidance of an experienced commercial conveyancing solicitor.

If you’re considering refinancing your commercial property, contact a commercial conveyancing specialist today to explore your options and ensure a smooth, hassle-free experience.