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Property and bank ring-fencing

This is one of a series of guides on issues connected to ring-fencing and banking reform faced by banks. Other guides cover issues such as tax, employment, issues for directors, pensions, litigation, third party contracts and competition considerations.

This guide was last updated in December 2013

The property issues for ring-fenced banks to address will be around security of property occupation. The majority of bank premises will be leasehold. If the ring-fenced bank is to have a separate identity the wider bank will need to look at its current property arrangements to see how best to 'house' the new entity. If space within its existing portfolio is inappropriate new premises may need to be found.

If the bank in question chooses to try to re-house the new entity from within its existing portfolio, it may find that group sharing provisions are insufficient. Not all leases contain group sharing provisions and a condition of group sharing is invariably that no relationship of landlord and tenant is created. Given that the proposed reforms require arrangements between the wider bank and the ring-fenced bank to be at arms length, this could be a problem.

Accordingly, general counsel may find themselves considering:

  • underletting from the wider bank to the ring-fenced bank.
  • assignment of leases by the wider bank to the ring-fenced bank.
  • acquisition of new premises for the ring-fenced bank if there is no suitable premises within the existing estate.
  • sale of surplus premises which the wider bank no longer require.

Each of these options would require engagement with landlords and this can be a time consuming and costly business at a point where time is short. At the outset it will be essential to devise a strategy for each of the above which whilst being fair to the wider bank and ring-fenced bank will also be appealing to landlords so as to not cause undue delays in the process.

The customer impact

Although less high profile than some customer-focussed issues, property arrangements are a significant factor for in house teams. Any disputes or poor handling of the property portfolio is likely to be frowned upon by shareholders and potentially the public, who may see the execution of such projects as an indicator of how effectively a bank's management can implement change.