Whether acquiring an investment property, refinancing a portfolio, or developing land — lenders will almost always require security.
That security commonly takes the form of a legal charge, often supported by a debenture (if a company is borrowing), and sometimes a personal guarantee from directors or shareholders.
These documents are central to property finance. They protect the lender, but they also carry legal and financial consequences for borrowers, investors and directors. Before completing a purchase or refinance, it is essential to understand how these documents affect your property, your company and potentially your personal assets.
1) What is a legal charge?
A legal charge (commonly referred to as a mortgage) is security over a specific asset, most commonly property. It can be granted by a company or an individual and is registered at HM Land Registry.
In a property transaction, the legal charge is usually completed at the same time as the purchase or refinance and registered immediately afterwards. Until it is repaid and formally discharged, it remains attached to the property title
What rights does it give the lender?
If the borrower defaults (for example by missing repayments or breaching loan conditions), the lender may:
- appoint a receiver over the property
- take possession
- exercise powers of sale
The sale proceeds are used to pay enforcement costs and then repay the loan. Any surplus is returned to the borrower.
In property investment and development, this is particularly significant. If market conditions change, rental income falls, or development timelines slip, the lender’s rights can directly impact ownership and control of the asset.
Lenders favour legal charges because property is tangible, usually high value and relatively stable as security. In an insolvency situation, a lender with a fixed charge over property is paid from the sale of that property ahead of floating charge holders and unsecured creditors, subject to limited statutory exceptions.
2) What is a debenture?
Where a property is owned through a limited company or special purpose vehicle (SPV), the lender will often require a debenture in addition to a legal charge.
A debenture is a security document granted by the company, typically creating security over all of its assets — not just the property itself.
This is particularly common in:
- Buy-to-let portfolios held through SPVs
- Commercial property holding companies
- Development companies
- Joint venture property structures
Most debentures create two types of charge: a fixed charge and a floating charge.
What is a fixed charge?
A fixed charge attaches to specific assets that are not normally sold as part of day-to-day trading.
This can include property (if not already separately charged), rental income, development contracts, machinery, intellectual property and shares in subsidiaries.
The company cannot sell, refinance or otherwise deal with any of these assets without the lender’s written consent.
What is a floating charge?
A floating charge covers assets that change regularly as part of running the business. An example would include stock, trade debtors, work in progress and cash in the company’s bank account.
Unlike a fixed charge, the company can usually continue to use and dispose of these assets in the ordinary course of business. However, if a trigger event occurs (such as default, insolvency or the appointment of administrators) the floating charge “crystallises” into a fixed charge.
A debenture typically covers all present and future assets of the company therefore any new assets acquired by the company automatically fall within the scope of the floating charge. The lender does not need to prepare a new security document to capture it.
Why do lenders use debentures?
Debentures provide comprehensive security across the entire property structure. They ensure the lender is protected not just against the property itself, but also income stream and associated contracts.
They also usually include a promise (a “negative pledge”) by the borrower not to grant further security to another lender without consent. It prevents the borrower from refinancing with another lender, using the property as security for additional borrowing or cross-charge properties within a portfolio.
Understanding these restrictions is essential when planning growth or exit strategies.
3) What is a personal guarantee?
It is a promise made by an individual (usually a director or shareholder) to repay the company’s debt if the company cannot.
If the company fails to pay, the guarantor becomes personally responsible and this can but personal savings, the family home and other personal investments at risk.
In property transactions, guarantees are particularly common where:
- The borrowing company is newly incorporated
- The lender considers the SPV thinly capitalised
- The development carries risk
- There is limited trading history
Due to the significant nature of entering into a personal guarantee most lenders will require that a guarantor obtain independent legal advice to ensure they understand the consequences, irrespective of the company’s interests. It is essential that anyone giving a guarantee understands the potential exposure before signing.
Why this matters to you
Debentures, legal charges and personal guarantees are not just formalities. They affect control of your assets, your ability to refinance or sell, and in the case of guarantees, your personal financial security.
The key question is not simply “Do I need this funding to complete?” but “Do I fully understand how this security affects my property, my company and my personal risk?”
If you would like to discuss your property transactions, our real estate team is here to help. To arrange an appointment with a member of our team, please email enquiries@mincoffs.co.uk or call our offices on 0191 281 6151.
