As many business people and property investors will know, many of the banks piled into the commercial property lending market when it was buoyant. However, after the financial crash, many of those same banks seem to be doing everything within their power to make life difficult for their customers.
As part of the major deleveraging process that may still take several years, most banks have established non-core divisions into which certain clients / assets have been pooled with a view to calling in those loans as soon as is 'legitimately' possible.
We at Prideview are aware of many cases where banks have declared events of default on the basis of breaches of covenants, for example, loan to value covenants. In many cases the breaches are trivial, but the banks have nevertheless served interest rate penalties, enforced rent assignments or demanded part or even full repayment.
We have found that, in certain cases, if the banks are challenged by solicitors, they will back down. However, in other cases legal proceedings are required. With the help of Vyman Solicitors, we recently assisted a substantial property client in a dispute with West Bromwich Commercial Limited:
- The client had a loan worth several million pounds.
- The loan was well secured over a fantastic portfolio of commercial properties let to ‘blue chip’ tenants.
- Annual interest payments and capital repayments were several hundred thousand pounds, which our client was meeting.
- However, they overlooked paying 2 fee instalments, which incidentally were not related to the loan and actually were in return for West Bromwich consenting to the removal of break clauses from several leases in the portfolio and would have materially increased the portfolio value!
- In Autumn 2012, West Bromwich declared an event of default, made a formal demand for repayment, sought to enforce rent assignments and charged an extra 2% default interest.
- As soon as the error came to light, the client immediately paid the amount due.
- But West Bromwich did not back down. Thus, in order to protect our client's interest, we were left no option to fight and bring the case to the High Court in Spring 2013.
- It also came to light, during the course of the proceedings that, in fact, West Bromwich had been taking extra capital payments which were ‘obscure’. The relevant letters sent by West Bromwich indicated that such payments were of interest only. Thus, West Bromwich actually had been overpaid!
- Vyman were successfully able to challenge West Bromwich’s actions and (1) obtained a declaration that the loan was not repayable (2) overturned the enforcement of rent assignments and (3) obtained an order for repayment of default interest charged and capital overpaid.
- Our client was also awarded costs.
You may also be aware that the Banks are relying upon market disruption clauses which they say allow them to charge higher rates of interest. Depending upon the precise terms of the facility letters and the general conditions, we have received legal advice to the effect that these extra interest charges are susceptible to challenge.
We have met many borrowers in similar situations and are considering launching a class action lawsuit. So please get in touch with us (Shailesh Patel, Prideview Properties or Anup Vyas, Vyman Solicitors) if you wish to join us.