Commercial Mortgages Broker UK Commercial Mortgage Glossary Reference edition, MMXXVI

Charge structures and security

First charge

The senior security a lender holds against a UK property. Ranks ahead of every other charge in a recovery and is the default position for a senior commercial mortgage.

First charge is the senior legal mortgage a lender registers against a property at HM Land Registry. It ranks ahead of every other charge against the same property in a recovery situation. On UK commercial mortgages a first charge is the default and almost always non-negotiable for the senior lender.

How a first charge actually works

When a UK commercial mortgage completes, the lender’s solicitor lodges a CH1 form (or equivalent for Scotland and Northern Ireland) with HM Land Registry. The charge is recorded in the property’s title register, becomes a public matter of record, and binds any future buyer or refinancing lender.

The borrower cannot sell, remortgage or grant a new charge against the property without the first charge lender’s consent. In practice this means redemption (paying off the loan) or a deed of priority renegotiating ranking.

What it means in a recovery

If the borrower defaults and the property is sold under a receivership or repossession, proceeds flow in this order:

  1. Sale costs (LPA receiver fees, marketing, legal).
  2. First charge lender: outstanding loan, accrued interest, default interest, fees.
  3. Second charge lender (if any): only after the first charge is fully repaid.
  4. Any other registered creditors.
  5. Borrower: residual equity, if any.

In a stressed sale, second and lower charges often see partial or zero recovery. That is why second-charge pricing carries a substantial margin over first-charge pricing.

When second or no charge is acceptable

UK commercial mortgage lenders almost always insist on a first charge against the financed property. Exceptions:

  • Top-up loans against unencumbered or lightly-leveraged property where a borrower already has an existing first-charge mortgage with another lender. The new lender takes a second charge.
  • Working capital lines secured by debenture rather than by a real-estate first charge.
  • Personal guarantee only: no property charge, but a contractual claim against the directors. This is rare on commercial mortgages and is more common on smaller business loans.

See also

Related entries

  • Second charge

    A subordinated security ranking behind an existing first charge on the same property. Used for top-up capital raises where the borrower wants to keep an in-place first-charge mortgage.

  • All-monies debenture

    A floating charge over all the assets of a company that secures every present and future liability owed to the lender. Standard ancillary security on UK commercial mortgages to corporate borrowers.

  • Debenture

    A document creating a charge over the assets of a UK company in favour of a lender. The corporate-side counterpart to a property mortgage.

  • Non-recourse

    Loan structure where the lender's only remedy on default is the property security itself, with no personal liability falling on directors or shareholders.