Bringing the CLLS Certificate of Title documents into line with lender expectations

These are some material points to note from the updates – these do not cover all changes so please get in touch if you have any questions.

What do the updates cover?

A number of points that lender’s solicitors would previously have to spend time raising as specific enquiries, particularly on occupational interests and head leases. Matters such as any exercise of options to determine or renew or rights of first refusal, latest rent reviews and details of third party consents, full wording of title restrictions and outstanding material obligations in agreements and contracts are now to be reported on as standard.

Liability caps – the liability cap wording is now included as standard, and so if a lender has not agreed a cap this wording needs to be actively removed.

Valuer – the Certificate no longer deals with sign-off by a valuer. This reflects standard market practice – it's usually the lender’s solicitor who will deal with valuer review as part of the condition precedent process. Most facility agreements will still include a requirement for the valuer to sign off the Certificate and overview reports as a condition precedent.

Changes to property searches – the coal and chancel repair searches are no longer required as standard searches. The impact of this change is debatable – if a property is in a historic coal mining area, then a coal search should still be provided. We would also recommend that lenders continue to require a chancel liability search – the Land Registry will still accept third party applications for registration of notices to protect a chancel repair interest and so there could still be a liability present.

Greater detail on planning – coverage of non-material amendments to permissions, and listed building consents. There is a new section requiring more detail on Community Infrastructure Levy, and expanded detail regarding compulsory acquisition of rights over the relevant property.

Expanded construction statements – the construction reporting should now cover works and material alterations carried out within the 12 years preceding the date of the Certificate (rather than 6). This matches the reporting requirements on construction warranties and guarantees and will help lenders determine what needs to be included in any security package, for example whether fresh collateral warranties are required or whether security over the existing warranties is sufficient.

New sections reporting on residential and mixed-use buildings – commercial investors (and their lenders) have been investing in these assets for many years and it is helpful that some relevant reporting is being added. The statements seek to flush out any potential issues with tenant rights of first refusal, collective enfranchisement and rights to manage.

What isn’t included?

Green lease clauses – although there are some changes to the environmental statements, reporting on green lease clauses in occupational leases is not incorporated into the Eighth Edition, save for data-sharing requirements. The CLLS view is that green lease clauses are not currently sufficiently common/standard as to merit inclusion, and so this would necessitate too many additional disclosures. Where this is a key metric for a lender then it should be made clear to the borrower that they should provide reporting on any other green lease clauses in occupational leases. The lender’s solicitor should raise it as an enquiry if no clauses are disclosed, although arguably if such clauses are not ‘material’ they may be outside the current scope of the Certificate.

Climate change risks – the updated Certificate now carves out consideration of climate change risks save where any issues are disclosed in environmental searches. Borrower’s solicitors will still have a duty to disclose any information of which they are aware, and so lenders will want to make sure that either appropriate environmental, flood and ground stability searches are carried out as part of the Certificate process, or that third party reports are provided with full reliance.

Building Safety Act 2022 – this is not specifically addressed by the updated Certificate; again, this is probably because the industry is still trying to understand the implications of the legislation. However, lenders lending for residential/mixed-use development and construction should consider what information about the application of the Building Safety Act is needed from the borrower as part of the due diligence process. Some statements in the updated Certificate will by nature require consideration of this legislation by a borrower’s solicitor eg to confirm compliance with statute or disclosure of notices served, but do consider whether this is sufficient.

Overall impressions

The changes are generally positive for lenders – they reflect the long-standing market position. The updates should also ensure that the more basic information is provided upfront as standard (without the lender’s solicitor needing to ask), which allows focus on the key issues. The onus will be on the borrower and its solicitor to get to grips with the increased number of statements to ensure that the right disclosures are made.

Do I have to use the Eighth Edition?

We recommend that the Eighth Edition (or the updated short form or wrapper reports, as relevant) should be used going forward; given that it includes much of the information that a lender’s solicitor will ask for anyway, it makes sense for a borrower’s solicitor to incorporate these statements and disclosures from the start of the transaction process.

There may be cases where it is more sensible to continue using the previous edition – in the short term, where a lender is already in the middle of the due diligence process and a change would add cost and delay completions or, in the longer term, where a previous Seventh Edition Certificate is being updated for a refinance and there is a desire not to reinvent the wheel unnecessarily. In these situations, it’s likely that much of the information has already been included already through negotiation of the Certificate; alternatively, a lender might ask for an additional confirmation in the front end of the Certificate that the new edition has been considered and any relevant new disclosures provided.