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Real estate financing in times of the Covid-19 crisis

Published on 30-03-2020
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 involves the guarantee of the government for a larger part of the financing (up to a maximum of 1.5 million euros).

Banks have been followed up with their own support measures for (healthy) SMEs, such as temporarily postponing repayment and sometimes also interest payments. Rabobank and ING can request redemption, while ABN is more generous. Payment of interest and redemption of ABN customers with a current business credit up to 2.5 million euros is not collected for 6 months. Additional customization can be provided for larger (business) customers.
Commercial real estate clients of, for example, ING Real Estate Finance and ABN can now also appeal for deferment of interest and repayment. In principle, the automatic 6-month deferral arrangement for ABN's interest and redemption only applies to real estate clients with a loan of between 2.5 million euros and 50 million euros who rent out to sectors that are severely affected by the corona crisis. The deferral also applies to commercial real estate with an ABN loan of up to 2.5 million. Rabobank is looking into whether custom solutions are possible. ING REF also wants to dampen the direct effects of Covid-19 and support real estate clients in cash flow shortages due to lower or no rental income. Their customers can request redemption.

The aim of these support measures is to prevent banks from having to cancel financing with real estate clients because they do not pay their repayment and interest. Because if these obligations are not met, that is one reason to terminate bank financing. In doing so, the bank must always observe its duty of care towards its customer.

In the event of an objection to the cancellation of the financing, a judge will always check whether the termination in the specific case is unacceptable for the (real estate) customer. It follows from case law that certain facts and circumstances can play a role in the cancellation of credit.
These include: (i) the duration, the degree of exclusivity, the size and complexity and the course of the financing relationship, (ii) the behavior and reliability of the relationship and the extent and timeliness with which the bank has been informed of all relevant circumstances, (iii) whether and to what extent the (real estate) customer has failed attributably, (iv) what period is given by the bank to find another (house) banker and which serious financial problems for the customer (will) arise if the financing cannot be transferred to another bank in the short term, (v) whether a contractual duty of care has been agreed, (vi) the bank's decision-making procedure prior to termination, ( vii) the manner in which the bank has provided consultations and whether and to what extent the bank has warned the customer in advance, (viii) whether the bank has raised expectations through its own conduct and (ix) other social interests.
The corona crisis could also be relevant in the facts and circumstances of a cancellation, for example when banks have generated a certain amount of confidence through statements and / or commitments.
The deferred interest and repayment will have to be paid in the future. If that does not work and if this is (partly) a reason for cancellation of the financing by the bank, the facts and circumstances outlined above remain important. The judge will then also check whether the cancellation is not unacceptable. It is advisable to continue to communicate with your bank during and after the corona crisis about the (im) possibilities for paying your interest and repayment and adjusting these obligations if necessary.