Date: March 30, 2020
Modified November 14, 2023
Reading time: +/- 2 minutes
A legal exposé on real estate finance and the corona crisis. When is the lender allowed to terminate the relationship, and how do you, as a client, make sure you don't default?
At the beginning of the corona crisis, the government quickly came to the aid of SMEs with their financing through the New Guarantee Scheme for Small and Medium-sized Enterprises (BMKB). This temporary liquidity support for companies affected by corona sees the government guarantee a larger portion of the financing (up to a maximum of 1.5 million euros).
Banks have followed through with their own support measures for (healthy) SMEs, such as temporarily deferring repayment and sometimes interest payments. At Rabobank and ING, repayment deferrals can be requested, while ABN is being more generous. Interest and repayment payments of ABN customers with a current business loan of up to EUR 2.5 million will not be collected for 6 months. Additional customization can be provided for larger (business) customers.
Meanwhile, commercial real estate clients of ING Real Estate Finance and ABN, for example, can also apply for deferral of interest and redemption payments. In principle, ABN's automatic 6-month deferral scheme for interest and repayment only applies to real estate customers with a credit between 2.5 million euros and 50 million euros who are renting to sectors heavily affected by the corona crisis. The deferral scheme also applies to commercial real estate with an ABN credit up to 2.5 million. At Rabobank, tailor-made solutions are being considered. ING REF also wants to cushion the direct effects of Covid-19 and support real estate clients when cash flow is tight due to lower or no rental income. Their customers can request a deferral of repayment.
The purpose of these support measures is to prevent banks from having to terminate financing with real estate clients because they do not pay their repayments and interest. Because if these obligations are not met, that is a reason to terminate the bank financing. In doing so, however, the bank must always observe its duty of care to its customer.
A judge, when objecting to the termination of financing, will always consider whether the termination is unacceptable to the (real estate) client in the specific case. It follows from case law that certain facts and circumstances may play a role in the termination of credit. These include: (i) the duration, the degree of exclusivity, the size and complexity and the course of the financing relationship, (ii) the conduct and reliability of the relationship and the extent to which and the timeliness with which the bank has been informed of all relevant circumstances, (iii) whether and to what extent the (real estate) customer has culpably failed, (iv) what term is given by the bank to find another (in-house) banker and what serious financial problems (will) arise for the customer if the financing cannot be placed with another bank in the short term, (v) whether a contractual duty of care was agreed upon, (vi) the manner of the bank's decision-making prior to the termination, (vii) the manner in which the bank consulted and whether and to what extent the bank warned the customer in advance, (viii) whether the bank created certain expectations through its own conduct, and (ix) other societal interests. The corona crisis could also be relevant in the facts and circumstances of a termination, for example, where banks have created a certain level of trust by communications and/or promises.
The deferred interest and redemption will have to be paid in the future. Should that not succeed and should that be (partly) a reason for the bank's termination of the financing, the facts and circumstances outlined above remain relevant. The court will also examine whether the termination is not unacceptable. It is advisable, even in times of and after the corona crisis, to keep communicating with your bank about the (im)possibilities of paying your interest and repayments and possibly adjusting these obligations.
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