Real estate finance in Singapore:

Transcription

1 Real estate finance in Singapore: Part 2 Structure and content This is the second part of a two part article by Kaylee Kwok, a Finance and Real Estate partner in RHTLaw Taylor Wessing LLP. In the first part the underlying concepts of Singapore real estate law were described along with some of the details on registration and contracts for the sale of land. Part 2 looks at the structure and content of a typical Singapore real estate finance transaction and the common types of banking securities furnished by borrowers. Structure of a typical real estate finance transaction A simple and straightforward real estate finance transaction in Singapore would typically involve the following structure: An individual (who owns a residential property in Singapore) wishes to borrow a loan facility from a Singapore bank. He approaches one of the banks in Singapore and the parties negotiate on the commercial terms of the financing e.g. loan amount and interest rates. Once the commercial terms are agreed upon between the parties, the bank issues a facility letter (see Content: Facility letters for further details) (also known as a letter of offer) to the borrower, who accepts the facility letter by signing and returning a duplicate copy to the bank. The bank and borrower proceed to appoint their respective lawyers. Both parties may appoint the same lawyer to act in the loan transaction, if neither party has any objections. After receiving instructions to act from the bank, the bank s lawyer carries out a title search on the borrower s property (see Title searches and legal requisitions on property for further details) (which is to be used as security for the loan). He also writes to the borrower s lawyer (if the parties have different lawyers) to request for various information and documents including copies of the replies to the legal requisitions on the property (see Title searches and legal requisitions on property for further details), the original title deeds, mode of loan disbursement and the completion date. If he is also acting for the borrower, he may write to the borrower directly to request for the original title deeds. Sometimes, third party approvals to the creation of the mortgage are required. If the land tenure is e.g. a 99-year lease granted under a State lease, the bank s lawyer should check the State lease and ascertain if prior written approval of the State is required for the creation of the mortgage. If so, he should write to the relevant government authority for approval. The borrower s lawyer or the bank s lawyer (if he is acting for the borrower also) carries out various legal requisitions on the property. If the reply to a legal requisition is not satisfactory e.g. property is affected by road or drainage reserves, the bank s lawyer should inform the bank as soon as possible, so that the bank can check with its valuers if the valuation of the property will be affected. The bank s lawyer prepares the mortgage (see Mortgage for further details) (based on the bank s standard format) and forward it to the borrower s lawyer (if the parties have different lawyers). The borrower s lawyer checks the mortgage and if it is in order, he arranges for the borrower to sign it. Parties rarely negotiate on the mortgage documents in retail banking transactions, as compared to those in corporate banking or syndicated loan transactions. The borrower s lawyer returns the signed mortgage to the bank s lawyer (if the parties have different lawyers). The bank s lawyer prepares a caveat 1 and lodges it with the Singapore Land Authority ( SLA ), to protect the bank s equitable interests over the property prior to lodgement of the mortgage. The bank s lawyer carries out bankruptcy and other court searches on the borrower. Based on the replies to the legal requisitions and the results of the searches on the property and 1 Under Section 115 of the Land Titles Act (Chapter 157, Singapore Statutes), any person claiming an interest in land may lodge with the Registrar of Titles a caveat in the prescribed form. The caveat takes effect from the time of lodgement and serves to preclude dealings in land which conflict with the rights of the caveator. This means that so long as the caveat remains effective, the Registrar of Titles is enjoined from registering any dealing which is prohibited by the caveat. A caveat lapses on the expiry of 5 years from the date of lodgement unless it is extended for further periods of 5 years each.

2 the borrower, the bank s lawyer prepares a report on title and sends this together with the mortgage (signed by the borrower) to the bank. The bank s lawyer confirms to the bank in writing whether all conditions precedent to the loan disbursement have been complied with and if so, informs the bank of the completion date and the mode of loan disbursement. The bank signs the mortgage (usually by an authorised signatory pursuant to a power of attorney) and returns it to the bank s lawyer. On the day of completion, the bank s lawyer updates the searches on the property and the borrower, and informs the bank accordingly. If the results are satisfactory, the bank proceeds to disburse the loan in the manner requested by the borrower e.g. remittance of funds to his bank account or issuance of cashier s order. It is common for the borrower to bear the legal costs of both parties, and the legal costs would be paid on or before completion. After completion, the bank s lawyer stamps the mortgage with the Stamp Office 2 and thereafter lodges the mortgage with the SLA together with the original title deeds 3. Upon registration, the SLA returns the mortgage and original title deeds back to the bank s lawyer, who forwards them to the bank for safekeeping. The bank s lawyer also forwards copies of the same to the borrower (if he is acting for the borrower also) or to the 2 Stamp duty is chargeable based on the loan amount at the rate of S$4 for every S$1,000 or part thereof, subject to a maximum stamp duty amount of S$ Where the borrower is a Singapore company, the bank s lawyer must also lodge a charge with the Accounting and Corporate Regulatory Authority of Singapore for registration, within 30 days after the creation of the charge (in this case, charge on land) in accordance with Section 131 of the Companies borrower s lawyer for retention. In the absence of any unforeseen circumstances or delays, real estate finance transactions similar to the one mentioned above would normally take about 6 to 8 weeks to complete. Content: Facility letters The underlying loan contract is usually either a short-form facility letter (e.g. for housing loans) or a more formal and complex facility agreement (e.g. for syndicated project finance loans). This loan contract is separate from the security documents, and it typically covers the financial covenants whereas security documents tend to incorporate covenants designed to protect the security. For purposes of this article, we will focus on the short-form facility letter for housing loan. The salient provisions which can be found in a typical short-form facility letter would include the following: Type and purpose For individual borrowers, this would often be a housing loan, term loan or overdraft facility. A housing loan will be used to finance the purchase of a property or refinance an existing housing loan, whilst a term loan or an overdraft facility will be for the borrower s personal use or investment purposes. Amount of loan This is usually pegged to the current market value of the property. With regard to residential or housing loans for purchase of residential properties, with effect from 12 January 2013, they will also be subject to the Loan-To-Value ( LTV ) limits imposed by Singapore s central bank, the Monetary Authority of Singapore ( MAS ) as summarised in the table below: Type of Borrower For Individual Borrowers For Non-Individual Borrowers LTV Limit for 1st housing loan (without any existing outstanding housing loan) 80% or 60% if loan tenure exceeds 30 years or extends past age of 65 years LTV Limit for 2nd housing loan (already has 1 existing outstanding housing loan) 50% or 30% if loan tenure exceeds 30 years or extends past age 65 years 20% 20% 20% LTV Limit for 3rd and subsequent housing loans (already has 2 or more existing outstanding housing loans) 40% or 20% if loan tenure exceeds 30 years or extends past age 65 years

3 Loan tenure With effect from 6 October 2012, the maximum limit on the tenure for all residential housing loans (as imposed by the MAS) is capped at 35 years. This will apply to both individual and nonindividual borrowers. Interest rate Interest rate can either be on fixed rate or floating rate basis. Nowadays, if it is on floating rate basis, then it will often be pegged to the bank s own lending rate or alternatively, the Singapore Interbank Offered Rate (SIBOR). Interest rate will be calculated on a monthly rest 4 or daily rest 5 basis. Type of security The loan facility and all moneys and liabilities owing by the borrower to the bank would usually be secured by a first legal mortgage. Sometimes, the bank may also require an assignment of tenancy agreements and rental proceeds, if the property is rented out. Availability period For a term loan or housing loan facility, there is usually a fixed period during which the facility will be made available to the borrower. This may be disbursed to the borrower in one lump sum or in instalments. Furthermore, the facility letter will list out the preconditions to disbursement which include: the bank being satisfied that the searches on the property and the borrower are in order and the replies to the legal requisitions are satisfactory; the bank or the bank s lawyer having received the original title deeds and the executed mortgage; the bank s lawyer having lodged the bank s caveat with the SLA; no event of default having occurred. 4 Monthly rest basis means that loan interest for the current month will be calculated based on the previous month s outstanding balance (which consists of principal and interest not paid, if any). 5 Daily rest basis means that loan interest will be calculated based on the previous day s outstanding balance. The difference between monthly rest and daily rest basis can be seen from the following illustration: Assuming that the outstanding loan amount on 1st April is SGD 100,000, on 20th April, borrower makes a capital repayment of SGD 30,000, and reduces the outstanding loan to SGD 70,000. If based on monthly rest interest calculation, he will still pay interest for SGD 100,000 loan until 30th April. If based on daily rest interest calculation, he will pay lower interest charge ie on SGD 70,000 from 20th April onwards. Monthly repayments, total redemption and partial prepayment For a term or housing loan, the outstanding principal amount together with interest will be repaid by way of monthly instalments, usually on the 1st day of each calendar month. Total redemption (ie full repayment) at any time during the loan tenure is possible subject to certain conditions imposed by the bank such as: the borrower shall serve the bank 3 months prior written notice of redemption or in lieu of notice, pay the bank 3 months interest; the borrower shall pay a redemption fee (many banks charge a rate of between 1% and 2% of the outstanding principal amount if total redemption occurs say within 2 or 3 years from date of 1st disbursement) Partial prepayment may be made at any time during the loan tenure subject to certain conditions imposed by the bank such as: the borrower shall serve the bank 1 month s prior written notice of partial prepayment or in lieu of notice, pay the bank 1 month s interest; each partial prepayment shall be in the sum of not less than say S$10,000 and in multiples of S$5,000 Fees and subsidies The borrower is usually liable to pay cancellation fee (many banks charge a rate of between 1% and 2% of the loan amount cancelled). He is also required to pay processing fees and administrative charges to the bank on a one-time or annual basis. Often, banks may grant legal subsidies (for payment of legal fees and disbursements incurred by the borrower) and valuation subsidies (for payment of valuation fees). Fire insurance The borrower is required to take up fire insurance on the property with such insurance company approved by the bank as soon as he accepts the facility letter. Special conditions In cases where the borrower is a foreigner, the bank may require a legal opinion to be issued by a foreign law firm from the borrower s country of domicile. If the borrower is married and is a national of Myanmar, Indonesia or Thailand, then written consent of the borrower s spouse (whether

4 or not the spouse is a co-borrower or comortgagor) is often required for the borrowing of the facility and the creation of the mortgage. In addition to the facility letter, there would also be a separate document (annexed to the facility letter) setting out the standard terms and conditions governing the credit facilities ( Standard T&Cs ). The Standard T&Cs is deemed as an integral part of the facility letter and both documents are to be read together. The Standard T&Cs will normally include the following: Preconditions to disbursement; Default interest; Representations, warranties and undertakings; Events of default; Bank s right of consolidation and right of setoff of accounts; Bank s right of review; Taxation; Bank s right of assignment and transfer; Disclosure of information; Indemnities e.g. currency indemnity as well as telephone, facsimile and indemnities; Governing law and dispute resolution Title searches and legal requisitions on property Nowadays, title searches are carried out online via the Singapore Titles Automated Registration System (STARS). A search can be made using the property address or the lot number, but not the name of the owner. The main details disclosed in a title search would be: Lot number and property address Land tenure (whether estate in fee simple or leasehold, and if leasehold, the number of years of the lease and commencement date) If land tenure is leasehold, registration number of the State lease Lot area Name, Passport / NRIC number, address and citizenship of the registered proprietor ie owner If the property is strata subdivided, the strata title plan number Caution / Notice / Order of Court Interest / Encumbrance e.g. existing mortgage Legal requisitions are carried out online via the Integrated Legal Requisition System Services (INTEREQ) which is linked to various government departments. Legal requisitions are sent to a total of 9 government departments including the Urban Redevelopment Authority (to confirm zoning and approved use of property), Land Transport Authority (to confirm if property is affected by road lines, reserves or schemes) and Inland Revenue Authority of Singapore (to confirm any outstanding property tax payable). In the case where the property is strata subdivided, a requisition should also be sent to the management corporation of the housing development in which the property is located to confirm whether there are (1) any outstanding maintenance or sinking fund charges owing by the unit owner and (2) any unauthorised alterations or additions affecting the common areas outside the unit. It is important to carry out the various legal requisitions in view that any reply which is not satisfactory could potentially result in the value of the property being adversely affected. In addition, the interests of the owner and the mortgagee could be adversely affected as well. For example, if a landed property (e.g. a bungalow or terrace house) is affected by a road reserve, it means that the Land Transport Authority is entitled to acquire the affected land area for its road construction / improvement schemes in future. Should this happen, the land area (and hence the value) of the property will be reduced. Mortgage Difference between Charge and Mortgage The terms charge and mortgage are often used interchangeably. Under Section 2 of the Conveyancing and Law of Property Act (Chapter 61, Singapore Statutes) ( CLPA ), a mortgage is defined as including any charge on any property for securing money or money s worth. A charge is a security whereby the owner of a property gives the right to his creditor to resort to the property for payment of a debt or claim. In the event of the chargor s insolvency, the chargee may enforce the security in priority to the claims of unsecured creditors. A charge is created by the contractual acts of the parties. It is in essence different from a mortgage, as unlike a mortgage, a charge does not involve a transfer of title or ownership (whether legal or equitable) to the chargee.

5 However, in practice, a charge and a mortgage would yield the same end result for the secured creditor even though the nature of the security is different. A mortgage is often regarded as an enhanced charge as it gives not only rights of appropriation over an asset (as a charge does), but it also involves a transfer of title or ownership (whether legal or equitable) to the mortgagee. Types of mortgages There are 3 main types of mortgages in Singapore legal mortgages, mortgages registered under the Land Titles Act (Chapter 157, Singapore Statutes) ( LTA ) and equitable mortgages. A legal mortgage over land is created by a mortgagor conveying his legal title to the mortgagee in consideration of the loan granted to him, subject to a proviso for redemption on repayment of the loan with interest. The conveyance must be by deed in the English language 6. Such conveyances are usually used when common law land is involved. They are very rare nowadays as almost all land in Singapore has been brought under the LTA and is referred to as registered land. Unlike the position under general law, a mortgage over registered land created under the LTA shall not operate as a transfer of the land but shall have effect as a security only 7. What the registered mortgagee has is in fact a charge which is enforceable against the registered land in the event of a loan default. An equitable mortgage is created in the following circumstances: a) Where the mortgagor has only an equitable interest in the land and as such, he can only create an equitable mortgage in respect of that interest. b) Where the mortgagor has legal title but parties merely sign an agreement to mortgage the land. c) Where there is a deposit of title deeds with the bank with an intention to create a mortgage - mere deposit of title deeds is in itself insufficient. There should be some form of memorandum or written agreement accompanying the deposit, as evidence of the intention to create a mortgage. Mortgagor s equity of redemption Under common law, a legal mortgage involves a transfer of legal title. However, equity ensures that a security transaction does not become an outright transfer of legal title. The mortgagor has the right to redeem his property and therefore retains some form of beneficial interest in the property. The sum total of the mortgagor s rights and beneficial interest in the property is known as the equity of redemption. As a mortgage arises out of contract, parties may incorporate such terms as they may mutually agree upon. Terms which do not form part of the security but which give the mortgagee additional advantages are known as collateral advantages. In equity, there must be no clogs on the equity of redemption, and therefore collateral advantages which do not keep within the equitable principles will not be upheld by the courts. Nevertheless, the law on clogs is becoming less relevant nowadays in light of developments in financing methods. For example, a borrower is offered attractive interest rates for the first 2 years but there are lock in provisions in the mortgage which preclude him from redeeming the mortgage within the first 2 years unless he pays a penalty fee. Apparently, such provisions are unlikely to be struck down as a clog on the equity of redemption. Common provisions to be found in mortgage 8 Common provisions of a typical mortgage would include the following: a) Consideration - either the amount and description of the banking facility or an all monies catch-all description stating e.g. all advances, loans, credit, overdraft and other banking facilities or accommodation and/or other facilities and services whether in the form of hire purchase, factoring, purchase of accounts receivables, derivatives, interest rate swaps, banker s guarantees and/or other facilities and services whatsoever from time to time granted or agreed to be granted or continued to be granted by the bank to the mortgagor, whether alone or jointly or jointly with any other person or under whatever style name or form and to such extent and for so long as the bank may in its absolute discretion think fit. The latter all monies description is more commonly used nowadays; 6 Section 53 of the Conveyancing and Law of Property Act (Chapter 61, Singapore Statutes) 7 Section 68(3) of the Land Titles Act (Chapter 157, Singapore Statutes) 8 Where the borrower and mortgagor are the same person, this is often called a first party mortgage. Where the borrower and mortgagors are different people, it is called a third party mortgage.

6 b) Covenant to pay 9 the mortgagor shall covenant to pay to the bank on demand all sums of money which shall from time to time and at any time be owing or payable to the bank by the mortgagor (for first party mortgage) or by the borrower (for third party mortgage) in respect of the banking facilities (see (a) above); c) Other covenants include the following: To maintain property in good and substantial repair; To observe all laws, regulations, rules and bylaws affecting the property; To take up insurance in the joint names of the mortgage and the bank with such insurance company as approved by the bank; Not to demolish, remove or alter any part of the property without the prior written consent of the bank; Not to sell, transfer, lease, license, part with or share possession of the property or otherwise dispose of the property without the prior written consent of the bank; Not to create any further or subsequent mortgage, charge or other encumbrance over the property without the prior written consent of the bank; d) Rights and powers of the bank such as the following: Right of consolidation and set-off of accounts; Right to debit accounts; Right to review and vary the terms relating to the banking facilities; Right to enter into possession of the property 10 ; Right to foreclose the mortgage 11 ; 9 The remedies of the mortgagee are cumulative. If after sale or foreclosure of the property, the proceeds are insufficient to satisfy the debt, the mortgagee may sue the mortgagor on the covenant to pay for the rest of the monies owing. 10 There is also a statutory right to enter into possession under Section 75 of the Land Titles Act (Chapter 157, Singapore Statutes). 11 There is also a statutory right to foreclose under Section 76 of the Land Titles Act (Chapter 157, Singapore Statutes). This involves the mortgagee applying to the court for an order for foreclosure and registering the court order with the SLA. The court order, upon registration, shall have the effect of vesting in the mortgagee all the mortgagor s estate and interest in the land, free from the mortgagor s equity of redemption. Power to sell the property 12 ; Power to appoint receiver 13. Discharge of mortgage A mortgage may be discharged in one of the following ways: a) By redemption where the mortgagor pays off his debt and redeems his property; b) By consolidation where the mortgagor has mortgaged several properties to the same mortgagee and there is a right to consolidate in the mortgage document, the mortgagee may require the mortgagor to redeem all the mortgages at the same time; c) By foreclosure where the mortgagee applies to the court for an order of foreclosure; d) By extra judicial sale where the mortgagee exercises the power of sale conferred upon it either under Section 24(1) of the CLPA or by the mortgage document. In exercising the power of sale, the mortgagee owes a duty to the mortgagor to act in good faith and take reasonable steps to obtain the true market value of the property or the proper price or the best price reasonably obtainable at the time; e) By judicial sale where the mortgagee applies to the court for an order of sale under Section 30(2) of the CLPA, or f) By effluxion of time Section 21 of the Limitation Act (Chapter 163, Singapore Statutes) states that no action shall be brought to recover any principal sum of money secured by a mortgage or other charge on land or personal property or to enforce such mortgage or charge, or to recover proceeds of the sale of land or personal property after the expiration of 12 years from the date when the right to receive the money accrued. 12 There is also a statutory power of sale under Section 24 of the Conveyancing and Law of Property Act (Chapter 61, Singapore Statutes). 13 There is also a statutory power to appoint receiver under Section 24 of the Conveyancing and Law of Property Act (Chapter 61, Singapore Statutes). A receiver is regarded as the agent of the mortgagor although he is appointed by the mortgagee. In addition to his statutory powers, a receiver s powers may also be conferred upon him by the security document eg mortgage.

7 Common types of banking securities Apart from real estate mortgages, the other types of banking securities available in Singapore include the following: Personal and corporate guarantees Assignments of contracts e.g. sale and purchase agreements and tenancy agreements Assignments of insurances Debentures (fixed and floating charges) Charges over deposits Charges over goods Share mortgages or share charges Ship mortgages Deeds of subordination Comfort letters We will discuss below in greater detail 2 of such banking securities: Guarantees A guarantee is a contract whereby a party ( guarantor ) promises to answer for the debt of a second person ( principal debtor ), the promise being made to the creditor to whom the principal debtor is liable. A contract of guarantee is an ancillary contract and cannot exist without a principal debtor s obligation. Pursuant to Section 6(b) of the Civil Law Act (Chapter 43, Singapore Statutes), a guarantee is required to be in writing and signed by the guarantor or someone lawfully authorised by him to sign it. In a joint and several guarantee, it is essential that all who are named as guarantors in the guarantee should actually sign the guarantee; otherwise, those who have already signed will not be bound. Unless otherwise agreed, a co-guarantor who has paid his due proportions has a right to contribution against all the other guarantors of the same liabilities. This right of contribution arises not by contract but under the equitable rule that equality is equity. However, this position may be varied by clear agreement. Where the guarantor is a company, upstream security (ie a subsidiary providing a corporate guarantee to secure loans to its parent company) or downstream security (ie a parent company providing a corporate guarantee to secure loans to its subsidiary) is possible as long as the company providing corporate guarantee is able to show that it will have some form of corporate benefit in doing so. In practice, parent companies would have some corporate benefit from guaranteeing their subsidiaries and likewise, subsidiaries should benefit from supporting their parent companies. In the absence of agreement to the contrary, there are circumstances which may release a guarantor from the guarantee and these include: Variation of loan contract if the liabilities of the principal debtor which the guarantor has guaranteed are varied, the guarantor is released unless he has agreed to the variation; Release of other co-guarantors if the other co-guarantors are released, the guarantor will also be released as this prejudices his right to a contribution; Undue influence if a child guarantees his parent or if an elderly parent guarantees his child, there is a presumption of undue influence. However, there is no presumption of undue influence of a married woman although one leading English case 14 had established the principle that where the wife s consent to stand as surety for her husband s debts was obtained as a result of undue influence, misrepresentation or other legal wrong of the husband, the bank would be fixed with constructive notice of that wrong and could not enforce the guarantee unless it had taken certain steps to protect its own position. In practice, in order to protect both the bank s interests and the wife s interests, she is usually advised to seek her own independent legal advice before signing the guarantee. Assignments of contracts In Singapore, there are 2 types of assignments outright assignment or transfer of legal title, ownership or interest in the property and assignment by way of security. Under Section 4(8) of the Civil Law Act (Chapter 43, Singapore Statutes), for an assignment by way of security to qualify as an absolute assignment (ie legal assignment) which is effective to pass the right to such debt or chose in action to an assignee, the following conditions must be satisfied: a) it must be by writing under the hand of the assignor; 14 Barclays Bank plc v O Brien [1994] AC 180, HL

8 b) it must not purport to be by way of charge only ie there must be a transfer of title, ownership or interest of the debt or chose in action. An assignment document would usually have the operative clause stating the Assignor HEREBY ASSIGNS.to the Assignee, and c) express notice in writing must be given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action 15. An assignment which does not comply with Section 4(8) of the Civil Law Act may nevertheless be effective as an equitable assignment. Whilst an equitable assignee can sue in his own name, he cannot recover the debt or damages without joining the assignor (ie the legal owner of the chose in action) as a party to the suit. The reason being that the debtor must not be put at risk of being sued by the legal owner of the chose in action later on. The two common types of assignments by way of security are as follows: 1) Assignment of sale and purchase agreement Assuming that an individual buys a residential unit from a developer while the housing development is still under construction, he will enter into a sale and purchase agreement with the developer prior to issuance of separate strata title for his unit. Separate strata title will normally be issued about 1 to 2 years after the completion of the construction. If the individual borrows a housing loan from a bank to finance the purchase, what he will give as security for the housing loan prior to issuance of separate strata title will be an assignment of his rights, interests and benefits under the sale and purchase agreement and such estate, rights, interests and benefits which he may have over the property (still being constructed). Contemporaneously with the signing of the assignment, he will sign a mortgage in escrow and deliver it to the bank. The mortgage will be perfected and lodged with the SLA upon issuance of the separate strata title. 15 Under the rule in Dearle v Hall ( ) 3 Russ 1, the priority of assignments over choses in action is governed by the date of notice to the debtor ie the first party to give notice to the debtor has priority even if he is the subsequent assignee provided that he does not have actual or constructive notice of the prior assignment at the time he lends the money or obtains the security. The provisions in the assignment of sale and purchase agreement would include those normally found in the mortgage (see Section (D)(4) above). In addition, there would also be a power of attorney clause appointing the bank as the borrower s attorney to take delivery of the title deed upon its issuance; to execute and otherwise perfect the mortgage, and to request and authorize the developer to execute the transfer of the property in favour of any person as the bank may direct. In accordance with Section 4(8) of the Civil Law Act, the bank s lawyer will procure that a notice of assignment be served on the developer as soon as the assignment has been created. 2) Assignment of tenancy agreements Assuming that the property is being rented out to a tenant, the bank may request the borrower to assign the tenancy agreement and rental proceeds to the bank as security for the loan granted. In such an assignment, the borrower as beneficial owner will assign to the bank all his rights, title, interests, benefits, advantages, permits, licences and remedies in under or arising out of all tenancy agreements and all rental proceeds and all claims for moneys payable or to become payable, including without limitation damages, arising out of the tenancy agreements subject to the proviso for redemption by the borrower. In the same assignment document, the borrower is also required to charge in favour of the bank all the monies in the bank account opened for the purposes of depositing the rental proceeds. The provisions in the assignment of tenancy agreements would include: Covenant to pay (see Section (D)(4)(b) above); Undertaking to perform and comply with its obligations and to procure the tenant to perform and comply with the tenant s own obligations under the tenancy agreement; Undertaking not to make any variation, termination, cancellation or repudiation of the tenancy agreement without the bank s prior written consent; Undertaking not to lease, let, sub-let, grant licences over, sell, assign, transfer, lend or otherwise dispose of or cease to exercise direct control over the property or any part thereof without the bank s prior written consent.

9 In accordance with Section 4(8) of the Civil Law Act, the bank s lawyer will procure that a notice of assignment be served on the tenant as soon as the assignment has been created. In practice, some banks may waive this requirement and require the borrower to serve the notice of assignment on the tenant only after an event of default has occurred. Key Contact Kaylee Kwok Partner, Singapore kaylee.kwok@rhtlawtaylorwessing.com Europe > Middle East > Asia Taylor Wessing LLP 2013 This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing s international offices operate as one firm but are established as distinct legal entities. For further information about our offices and the regulatory regimes that apply to them, please refer to: NB_001116_03.13