When seeking finance for a commercial property, one of the key terms you'll likely encounter is a legal charge.
Whether you're acquiring premises for your business or refinancing an existing asset, understanding how legal charges work is crucial to protecting your investment and ensuring compliance with lender requirements.
In this guide, our Banking and Commercial Property Lawyers outline what a legal charge is, what restrictions it may place on your use of the property, how it's registered, and the implications of breaching its terms.
We also explain what happens if you want to take out further loans or discharge the charge in future.
A legal charge is a charge granted over a property as security for a loan. It gives the lender certain powers in relation to the property until the loan is repaid.
Does a legal charge restrict what I can do with the property?
The legal charge will include various covenants on the part of the borrower that it must comply with.
The covenants will differ from lender to lender but they usually include covenants to keep the property insured, to keep the property in good repair, not to make structural alterations without the lender’s consent, not to grant any leases or other tenancies without the lender’s consent and not to enter into any other legal charge in respect of the property without the lender’s consent.
A covenant not to change the use of the property without the lender’s consent may also be included.
It's important to comply with the covenants as breaching any of them could mean that the lender can enforce its security.
Will the legal charge be registered?
If the borrower is a company, the legal charge must be registered at Companies House within 21 days of completion.
This will be dealt with by the borrower’s or lender’s solicitor.
The legal charge will also be registered at the Land Registry against the title register for the property.
A restriction is usually entered on the title register as well, which will state that no “dispositions” (including a transfer, lease or easement) can be registered without a consent from the lender.
Can I have more than one legal charge over the property?
It is possible to have more than one legal charge over the property, but the existing lender(s) will need to consent each time a new legal charge is granted. They would only agree to this if there is sufficient value in the property to secure all of the loans.
A deed of priority will have to be entered into, which will set out in what order the lenders should be repaid if the security is enforced, in case there is not sufficient money to repay all the lenders.
What are the lender’s powers if I breach the legal charge?
The lender’s power of sale becomes enforceable following a breach by the borrower.
The legal charge will also usually include provisions which allow the lender to appoint a receiver to enforce the security if the borrower breaches its terms.
A breach will include any repayment not being made on time, a breach of any of the borrower’s covenants in the legal charge and insolvency of the borrower. The legal charge will set out the powers of the receiver, which normally include the power to collect rents and to sell the property.
If the lender sells the property, all monies received from the sale will be applied first in paying all outstanding expenses and charges, the receiver’s remuneration, in discharging the loan and only then would any surplus be paid to the borrower.
How do I discharge the legal charge?
The legal charge can be discharged when all repayments have been made to the lender. The lender will provide a document called a DS1 which will confirm the discharge.
The lender can either submit an electronic DS1 directly to the Land Registry, or provide a paper DS1 to the borrower’s solicitor to remove the registration of the legal charge on the property’s title register. If the discharge is for part of the property only (for example, if the borrower is selling part of the property), the lender will provide a DS3.
If the legal charge is also registered at Companies House, the borrower’s solicitor or accountant will need to deal with the discharge at Companies House by submitting an MR04 form.
A legal charge is an essential component of most commercial property finance arrangements, offering lenders the reassurance they need while providing borrowers with access to much-needed capital. However, it is vital to fully understand the obligations and restrictions that come with granting a legal charge, as non-compliance can have serious consequences, including enforcement action, the appointment of a receiver, or even the forced sale of the property.
Before entering into any agreement involving a legal charge, borrowers should carefully review the terms with the support of experienced legal advisors. Ensuring compliance with the lender’s covenants, properly registering the charge, and understanding your rights and responsibilities can help protect your investment and avoid costly pitfalls.
If you are considering granting or discharging a legal charge over a commercial property, seeking specialist legal advice will ensure your interests are protected at every stage of the process.
Need Advice on Legal Charges for Commercial Property?
At Myerson Solicitors, our expert Banking lawyers provide clear, practical advice tailored to your business needs.
Whether you're securing finance, navigating lender requirements, or discharging an existing charge, we’re here to guide you every step of the way.
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Charlotte Hook
Senior Associate
Charlotte is a senior associate in the Real Estate team at Myerson. She trained at Myerson and qualified in September 2017. Charlotte has been recognised in the Legal 500 several times as a “Rising Star” and a “Leading Associate”.
Charlotte specialises in sales and purchases, landlord and tenant work and secured lending matters. She has acted for both sellers and purchasers on various types of properties including offices, retail units, industrial units and land for development. Charlotte has expertise in negotiating conditional contracts, option agreements and overage provisions.
About Charlotte Hook