IN THE present economic climate, the delicate relationship between property companies and their lenders is changing.

Recently, lenders have upped their game in creating sophisticated security strategies to ensure mortgage debts from defaulting businesses can be repaid out of capitals assets and interest is covered for the default period.

Some lenders are considering alternative enforcement methods such as assignment of rental income, which enables payments from a tenant to be appropriated from the landlord without a receiver being appointed.

This is often required where property rental income is the only or main source of repayment of the mortgage and steps can be taken to prioritise the rental payments against other creditors.

A stronger reliance is now placed on management information relating to the borrower itself rather than the financial viability of a proposed development project.

Greater consideration is being given to the talent of the directors and their ability to deliver the project successfully, so property companies need to demonstrate strong leadership if they are to be successful in their bid for funding.

Lenders have become less reliant on the use of indemnity insurance to resolve property defects.

Although effective against historical covenants carrying minimal risk, it cannot be used to resolve complex title issues or repay losses caused by the insolvency of a developer.

Despite these extra measures put in place by the banks, the position of property firms has been strengthened by the Government’s pledge to provide greater support for tenants whose buy-to-let mortgage agreements have not been approved.

This support will make it harder for banks to recover repossession in those cases.

Occupiers struggling to pay their mortgage may also receive more attention in the future, as the Government clamps down on repossessions being used as a first resort by lenders.

The Government review into the banking sector, due to be published next year, promises to suggest restrictions on certain lending activities. It is clear that the landscape for both banks and the property companies they lend to is likely to witness further change over the next few years.