A brother and sister inherited a large house in Hertfordshire from their parents. Although they had no property development experience they realised that the house had redevelopment potential.
They decided to enter in to corporate joint venture (JV) with a family friend who was an experienced property developer. They agreed that they would seek planning permission to demolish the existing house and build 2 detached 5 bedroom houses on the site. With the brother and sister providing the land and the developer providing the expertise and build costs, they entered into a shareholders agreement to divide any profits equally upon the sale of the new houses.
When United Trust Bank was approached to provide an £830,000 bridging loan, the first house had recently been completed and was on the market. The second house however was only partially complete with around £250,000 needed to finish the build.
The purpose of the loan requested was to reimburse the developer for the working capital he’d injected into the project to date and to provide the funds required to complete the development. The bridging loan was to be repaid from the sale of either of the new houses, one of which was already on the market.
When completing due diligence we had to satisfy ourselves with the details of the JV agreement and evidence that the development had the benefit of all the statutory consents and warranties required. A third party legal charge was also required over the properties as the land was still owned by the brother and sister.
Once the case manager was happy that all was in order, the proposal received credit approval and UTB agreed to provide the bridging loan required. This gave the JV the necessary funds to complete the build of the 2nd house ahead of the sale of the completed house and also to reimburse the developer with capital he’d invested in the build which he could now deploy into other projects.
Loan facility £830,000