Queries regarding terms in commercial mortgage documentation

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WhiteCoat

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Hi all,

My solicitor is on vacation so I wonder if someone could help with my query please. I am in the process of buying the building in which I have my practice and am going to obtain a mortgage in this regard.

Given all the controversies regarding banking documentation, I decided to read the T&Cs. There's one section that seems a bit strange and I wonder am I reading this correctly and whether it's normal practice. The relevant section is set out below and it seems to me that the bank is asking me to make covenants about all my assets which seems excessive.

Thanks in advance for any guidance.


The Borrower covenants and agrees with and undertakes to the Bank that, for as long as any facility is available for utilisation or any amount is outstanding to the Bank in respect of any facility:

(i) the Borrower will not, without the prior consent in writing of the bank, create or agree to create or permit any mortgage, charge or other encumbrance of any nature over any of the assets or property of the Borrower; and....

(xi) the Borrower will not (and will not allow any other party on the Borrower’s behalf to) sell, transfer or lease the whole of or any part of the Borrower’s present or future material assets or otherwise dispose of the whole of or any part of any such asset either in a single transaction or in a series of transactions, whether related or not and whether voluntarily or involuntarily without the Bank’s prior written consent; and....

(xiv) the Borrower will not enter into any joint venture, partnership or similar arrangement with any other person or make any significant acquisitions without the Bank's prior written consent.
 
WhiteCoat said:
There's one section that seems a bit strange and I wonder am I reading this correctly and whether it's normal practice. The relevant section is set out below and it seems to me that the bank is asking me to make covenants about all my assets which seems excessive.
Click to expand...
All looks standard for business lending terms.
 
Hi Red

Does this mean that if the borrower wanted to sell his home, he would have to get the commercial lender's permission?

Clause XI seems to imply that.

Brendan
 
Hi Brendan,

Yes that's exactly my reading of the docs which seems excessive.

Similarly, part (xiv) seems to be staying that I would need the bank's approval if I want to enter a separate business relationship.
 
That's my understanding, technically. But the bank only cares about you reducing your net assets in the case of a person borrower.

These are AIBs terms for a standard term loan, with full recourse. The borrower is liable for the debt, so this is to stop the borrower putting their assets beyond the reach of the bank, say by transferring everything to their spouse or a business partner, or selling below market value.

Remember, the same T&C's apply whether borrower is a person or a company, so the wording has to cover all scenarios, but the covenants are very restrictive. The first clause effectively prevents you taking any form of secured lending from any other bank without permission.
 
Thanks RedOnion

So my reading of the clauses seems correct. I am amazed at how restrictive they are and that I never heard anybody talk about these covenants before. It seems ironic to me that when I was applying for this mortgage and asked bank to explain the overall process to me, they did not advise me to get permission from the other institution with which I have mortgages (and they are aware of my other assets and borrowings).

I must dig out other documentation to see what I covenanted to do in the past! Are these restrictive clauses a recently new development or has it always been so?

These clauses are pretty onerous. I would not have been aware of them had I not gone through the minutiae. I had understood that the bank was obliged to draw your attention to important aspects of the loan?
 
WhiteCoat said:
I must dig out other documentation to see what I covenanted to do in the past! Are these restrictive clauses a recently new development or has it always been so?

These clauses are pretty onerous. I would not have been aware of them had I not gone through the minutiae. I had understood that the bank was obliged to draw your attention to important aspects of the loan?
Click to expand...

It's not like you're going to be able to negotiate those clauses. So if you want the money you sign their contract and agree to their clauses.

You could spend your whole life studying the meaning of each word in those clauses but it would be a waste of time. The bank wants you tied up so that you are a good bet to lend to. Seems fair enough to me. Pretty standard I would have said.
 
Thank you Bronte,

I do not intend to spend much time on this. The bank in question has been "courting" me for some time (it's not the bank that I've traditionally dealt with). I sent the (new) bank an e-mail in which I explained that I was not happy with these terms and was now considering my position. I'm pretty sure that my regular bank will finance me in any event so it will be interesting to see what happens and how much new bank wants my business.

In passing, I am aware of various debates about the inadvisability of people not reading banking documentation and assuming things. So, I find it amusing that when I go to the trouble of reading said material and enquiring about it, you seem to be encouraging a "just sign it" approach.
 
WhiteCoat said:
Thank you Bronte,

I do not intend to spend much time on this. The bank in question has been "courting" me for some time (it's not the bank that I've traditionally dealt with). I sent the (new) bank an e-mail in which I explained that I was not happy with these terms and was now considering my position. I'm pretty sure that my regular bank will finance me in any event so it will be interesting to see what happens and how much new bank wants my business.

In passing, I am aware of various debates about the inadvisability of people not reading banking documentation and assuming things. So, I find it amusing that when I go to the trouble of reading said material and enquiring about it, you seem to be encouraging a "just sign it" approach.
Click to expand...


You could say I'm saying that, I'm actually saying they hold the cards, you want the money, you won't beat their legal requirements, tight lending is good, they need to look out for themselves, and that is what they will do. Unless there is something in there that you cannot see yourself complying with I don't see the issue. And your solicitor should be the one pointing it out to you.

And yes I do read the small print. Except I've given up for online terms and conditions as it's just designed to infuriate one.
 
Bronte said:
I'm actually saying they hold the cards....
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My point is that they don't hold all the cards. They are just acting as if they hold all the cards. New bank has made me an offer which I can accept or reject! Presumably, they get away with it because insufficient numbers challenge them. Personally, I will be just as happy to deal with my traditional bank - albeit potentially on similar terms! [Think of it as a mini protest against unfair terms...……...the relevant manager in the new bank can explain to his boss why the recorded "win against the head" has been lost! Who's holding the cards now?:D].

At a high level, my point in posting originally was to check what others thought about these terms and to get a sense of their evolution.
 
WhiteCoat said:
Who's holding the cards now?:D].
Click to expand...

But thats only a Pyrrhic Victory.

Thems are the conditions at which they will lend at.

I cant also help feel, that had these terms been put in place long ago, the games that were played of putting your assets out of reach while defaulting on your obligations would have been a pointless exercise.
 
LS400,

"A Pyrrhic victory is a victory that inflicts such a devastating toll on the victor that it is tantamount to defeat. Someone who wins a Pyrrhic victory has also taken a heavy toll that negates any true sense of achievement."

There is no "toll" on me in this regard - simply contacting my existing bank who will be happy to do the paperwork, etc. Feeling helpless, on the other hand, would feel like a burden.

LS400 said:
....had these terms been put in place long ago, the games that were played of putting your assets out of reach while defaulting on your obligations would have been a pointless exercise.
Click to expand...

This is not a fair description or summation of the terms that I quoted.

I am, for example, disinclined to seek the bank's prior written permission to lease or sell my holiday home as required by (xi) and I'm similarly reticent to let the bank determine who I can enter partnership with, as per (xiv). These are silly provisions in my opinion.
 
Have you brought this to the attention of the bank manager? Odds are they have no idea those terms are in there. Good chance you will also get "don't mind them, they are never enforced". If not, take them out then. If there is ever a dispute, you are the one who has signed the document saying you agree with their terms.
 
WhiteCoat said:
I am, for example, disinclined to seek the bank's prior written permission to lease or sell my holiday home as required by (xi) and I'm similarly reticent to let the bank determine who I can enter partnership with, as per (xiv). These are silly provisions in my opinion.
Click to expand...

Why on earth would you have even let them know you had a holiday home. My old solicitor that's what he did. And sold it without them ever knowing. And I won't even go into what another solicitor who is a friend of mine did. I'll tell that story on here in about 20 years.
 
Hi SBarrett,

Thank you, thank you. Yes, I sent him an e-mail this morning - I'm awaiting the bank's response.

Bronte,

To answer your question - as part of "getting to know you" and to demonstrate the relative strength of my finances. I get the impression you don't understand my point. It simply is that I believe what I being asked to commit to is, as another poster put it, way OTT. Personally, I like to agree to fair terms and then to stick to them. Frankly, I'm struggling to understand why you seem to have a problem with this?
 
SBarrett said:
Odds are they have no idea those terms are in there.
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You have got to be kidding, You make it sound like, it depends on who you get talking to at the bank, discretion and so on on, its either in the contracts or it not. .

Bronte said:
Why on earth would you have even let them know you had a holiday home.
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I would assume it was to show how solvent WhiteC was, and with that in mind, the more you show your hand, the more details they want.
 
LS400 said:
You have got to be kidding, You make it sound like, it depends on who you get talking to at the bank, discretion and so on on, its either in the contracts or it not.
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The contract is a standard contract written by the bank solicitors. What I am saying is I doubt the bank managers know the terms of these standard contract and most probably haven't read the contracts.
 
SBarrett said:
The contract is a standard contract written by the bank solicitors. What I am saying is I doubt the bank managers know the terms of these standard contract and most probably haven't read the contracts.
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They also would not have the legal competency to fully understand the clauses. And I very much doubt that they have the power to waiver any of those clauses. All those kind of questions are sent to Legal Head Office who will come back with a blank no. Unless you're Larry Goodman, Smurfitt or Desmond. In which cases things are handled differently.
 
LS400 said:
I would assume it was to show how solvent WhiteC was, and with that in mind, the more you show your hand, the more details they want.
Click to expand...

It's also good to not show all your hand or all your assets, just in case. But obviously if you need the money then showing all your assets is going to help you get the money.
 
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