Winds of change

Earlier this week, the CLLS published its updated certificate of title. The periodic updates are intended to ensure the form of certificate (which is used to on real estate financings to provide lenders with an overview of the properties they are lending against) reflects current market practice. As such the statements contained in the certificate are a form of benchmark for assets, with borrowers disclosing where their assets depart from this form.

Therefore, any updates could be seen a moving the needle in what is "institutionally acceptable". Unpicking the latest update, there are a couple of themes which emerge, where market practice is moving on.

Balance shifting towards occupiers

The revised certificate contains a number of changes to the assumed terms of occupational leases, which shift the balance in favour of tenants.

• Whilst the previous certificate assumed no uninsured risk provisions were included, the new position is that the letting documents will contain provisions allowing the landlord to elect whether to reinstate a property damaged by uninsured risk, with termination rights where this reinstatement does not occur. Additionally, it is assumed rent payments will be suspended following uninsured damage.  Damage by uninsured risk is also carved out the tenant's repair obligation.

• Under the old certificate, borrowers were expected to have an absolute right to an authorised guarantee agreement on any assignment by their tenant. The new drafting assumes this will only be provided where reasonably required.

Go Green!

Sustainability is becoming an increasing concern of real estate investors and lenders, and so it is unsurprising this has been reflected in the updated certificate.

• Borrowers are now required to confirm that EPCs are held in respect of the entire property (a statement which in a multi-let property may be more difficult for borrowers and their advisors to satisfy than it would first appear) and set out the rating and expiry date of those EPCs. This will be of increasing importance to lenders as the minimum energy efficiency standards are expected to be tightened up over the coming years with penalties for non-compliance becoming more stringent.

• Borrowers are now assumed to require their tenants not to undertake alterations which adversely affect the property's EPC and demountable partitioning cannot be moved if this will adversely affect building's systems.

• Letting documents are now assumed to oblige the borrower and its tenants to share the data each holds relating to the environmental performance of the property. Whilst it is becoming increasingly common for leases to oblige landlord and tenant to share data on energy consumption, the reference to "environmental performance", which is not defined by the CLLS, goes beyond what is common in the market and may create some uncertainty as to what needs to be disclosed.

Whilst these provisions do track trends emerging within the market, the statements referred to above are by no means universally contained in new leases let alone in older agreements. It shall be interesting to see whether the changes reflected by the CLLS are increasingly reproduced as parties negotiate leases and how quickly the market will adapt to this new standard.