Do I Need a Loan Agreement with my Legal Charge?

Posted by David Cammack on 27th January 2020

 

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At Legalo we supply high quality legal document templates. Our Legal Charge template is a very popular one, but we have noticed that it is not always purchased with a Loan Agreement of one sort or another. (The same point we make here about the legal charge applies equally to our Debenture Agreement template for taking security over a company.)

For this situation, we have designed our templates so that you have both:

  • A secured loan agreement; and
  • A legal charge (or debenture).

What does each template do?

The secured loan agreement notes that a loan is being, or has been, made. It notes the terms of the loan, such as:

  • what the amount of the loan is,
  • when it is repayable, and
  • how much interest is due on it.

The loan agreement also notes that the security for it is in a separate legal charge document. It is an important document and evidence that the loan has been made if it ever comes to your needing to enforce the loan by suing the borrower or enforcing the legal charge on their house.

Then you just need the legal charge document to cover the security for the loan.

If you don’t have the loan agreement, then you have security but what for and what are the terms of the loan? How would you know when it is to be repaid and if you are charging interest? For this reason, it is very important to ensure you have covered both sides of this process in writing: (a) the recording of the terms of the loan and (b) the creation of the security.

Helpfully, Legalo have put together a package for you where you can buy the 2 templates you need together and a receive a great discount of 20%. You can find the discounted package here: https://www.legalo.co.uk/template/commercial/discount-package-secured-loan-legal-charge/.

What if I already have a loan agreement template?

If you already have a written loan agreement that you intend to use with the legal charge, then this may be OK. However, the loan agreement you use should include a clause that states that:

  • the loan is a secure loan; and
  • the security in this case is the separate legal charge document.

The two documents should then work together. Our secured loan agreement already covers these necessary points.

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What else do I need to do with my secured loan agreement and legal charge?

After you’ve got your documents in order, signed and dated, you will need promptly to register the legal charge. You do this at the Land Registry over the property in question. You should look at the Land Registry’s website for this information, and thankfully is quite helpful about what forms you need and what fees you need to pay to do this. (This details of aspect are outside of the scope of what Legalo can help you with.)

What if there is already a first legal charge or mortgage registered on the property in question?

If the security the borrower is giving is a second legal charge, then you will usually need the written consent of the holder of the first security charge. You need this when you are at the stage of trying to register the legal charge at the Land Registry. Normally the Land Registry will refuse your application to register the second legal charge without it. This is because, in most cases, the holder of a first charge will have a restriction at the Land Registry. The restriction stops the property owner giving other charges over the property at the same time without their consent. Legalo do not offer any extra templates to cover this aspect. The borrower simply needs to write to the first charge-holder to ask for their consent.