Director’s Loan – Secured over Joint Property
This Director’s Loan Agreement - Secured over Joint Property records the terms of a secured loan made by a company to one of its directors, or to a person connected with a director. The loan is secured by an equitable charge over jointly owned property.
When To Use This Director’s Loan Agreement (Secured over Joint Property)
Use this template only where the director (or connected person) owns the property jointly with another person. If the property is owned in the director’s sole name, use Director’s Loan Agreement - Secured instead.
What This Template Covers
The agreement provides for the loan to be drawn down in one or more advances (with optional wording to reflect the agreed approach). It is intended to be signed as a deed, and the company should execute it in one of the ways permitted under the Companies Act 2006.
Security And Land Registry Protection
The security is an equitable charge. An equitable charge is a weaker form of security than a legal charge, but it is used here because the Land Registry formalities are simpler.
The equitable charge will rank behind any legal charges already in place (or later granted), such as a bank or building society mortgage. If the security is enforced, creditors with legal charges are paid first from the sale proceeds.
The agreement includes provisions (clauses 16 and 17) dealing with the Land Registry applications the company should make to protect its equitable charge:
The first application is for a Unilateral Notice to be entered in the charges register, so a potential buyer is put on notice of the equitable charge.
The second application is for a Restriction to be entered in the proprietorship register, so a transfer cannot be registered without the company’s consent (allowing the company to insist on repayment or suitable alternative security before consenting).
Further detail, including guidance on completing the relevant Land Registry forms, is included in Guidance on Land Registry Applications relating to a Director’s Secured Loan.
Joint Ownership And Independent Legal Advice
Because the co-owner is providing security but may not be receiving any direct benefit from the loan, a legal presumption of undue influence can apply. This can be rebutted by showing that the co-owner took independent legal advice on the nature and effect of the agreement. The company should ask the co-owner to obtain independent legal advice and should receive a letter from the independent adviser confirming that advice has been given. If the presumption is not rebutted, the agreement will be unenforceable against the co-owner (although it will remain enforceable against the director).
Land Registry Execution Point
The execution provisions of this template are compliant and consistent with the requirements of the Land Registry for prescribed form deeds introduced from 20 September 2019.
Company Law And Shareholder Approval
Under the Companies Act 2006, the general rule is that a company cannot make a loan to a director (or give a guarantee or provide security in connection with a loan to a director) unless the transaction has been approved by a majority of the company’s shareholders. The relevant resolution is Shareholders’ Ordinary Resolution for Approving Loan to a Director or Acting as Guarantor for a Director.
If the aggregate value of the loan and other related loans to the director does not exceed £10,000, shareholder approval is not required. Other exceptions are set out in sections 204-209 of the Companies Act 2006. In most cases where the loan is for the director’s personal use and exceeds £10,000, shareholder approval will be required. Further information can be found in the Company Secretary factsheet Loans to Directors.
Consumer Credit Act Point
The company should ensure that, in making loans, it complies with the Consumer Credit Act 1974, either by complying with the requirements for regulated loans or by bringing the loan terms within one of the exemptions. Information about the Consumer Credit Act, including regulation and exemptions, is available on the Financial Conduct Authority website.
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