Legal Fee

Legal Fees in Commercial Mortgages

A legal fee in the context of a commercial mortgage refers to the professional charges billed by solicitors or legal counsel for the work required to secure a loan against a commercial property. Unlike residential mortgages, commercial transactions involve significantly more due diligence, complex title issues, and bespoke loan agreements, which are reflected in the cost and scope of the legal work performed.

In a standard commercial mortgage transaction, it is industry practice for the borrower to be responsible for the legal costs of both their own solicitor and the lender’s solicitor. These fees ensure that the property provides adequate security for the loan and that all legal obligations are correctly documented and registered.

The detailed description of what these fees cover typically includes:

• Title Investigation: A thorough review of the property’s title deeds to ensure there are no restrictive covenants, easements, or legal defects that could affect the value of the security or the lender’s ability to sell the property in the event of a default.
• Review of the Loan Offer: Legal analysis of the Facility Letter or loan agreement to ensure the borrower understands the terms, conditions, and financial covenants they are entering into.
• Security Documentation: The preparation and execution of the Legal Charge (the mortgage document) and any additional security such as personal guarantees, debentures, or assignments of rental income.
• Property Searches: Conducting and reviewing essential searches, including local authority, environmental, drainage, and chancel repair searches, to identify potential liabilities associated with the land.
• Reporting on Occupational Leases: If the property is tenanted, the legal team must review all existing leases to confirm that the rental income is secure and that the lease terms are acceptable to the lender.
• Registration and Formalities: Managing the payment of Stamp Duty Land Tax (SDLT) and ensuring the lender’s charge is correctly registered at the Land Registry and, if the borrower is a company, at Companies House.

Calculation of Fees

Legal fees for commercial mortgages are rarely fixed at a flat rate. Instead, they are typically calculated based on the complexity of the transaction, the loan amount, and the number of titles involved. Fees may also increase if the transaction involves international entities, complex corporate structures, or significant negotiations regarding the security documents. In addition to the solicitor's professional fee, the borrower will also be responsible for disbursements, which are third-party costs such as search fees and registration taxes.