Bridging the Gap? Common Disputes with Bridging Lenders

However, bridging loans are more onerous than traditional finance as they are usually more expensive, have higher interest rates and require personal guarantees. In the event of a default, bridging loan companies can often become aggressive in their pursuit of a debt, seeking possession of property and significant costs.

Common dispute examples

1. Penalty interest clauses – in 2023, the High Court in Houssein v London Credit Limited held that a clause in a bridging loan agreement which imposed a default interest rate of 4% per month (four times the standard interest rate under the agreement) constituted a penalty and was unenforceable. Whilst default interest clauses are there to protect the “legitimate interests” of the lender in the event of a breach, they should be tailored to a specific transaction and proportionate to the risks faced by a lender in a default situation.
2. Difficult to redeem – if a bridging loan agreement has an onerous redemption clause that makes it difficult for the borrower to repay, they may have an equitable right to argue that the terms of the loan are unenforceable aka a “clog on the equity of redemption”.
3. Misrepresentation – if a borrower has relied on an untrue statement made by a bridging lender to enter into a loan agreement and has subsequently suffered loss, there may be an argument for misrepresentation. A lender might, for example, have made untrue statements about the nature of the loan, how the terms of the loan would work, or that a personal guarantee would be needed.
4. Personal Guarantees and undue Influence –a personal guarantee could be deemed unenforceable if there has been undue influence or an unconscionable bargain. This might arise where a borrower is inexperienced and has been so influenced/pressured that they could not exercise a free and independent judgement as to whether to enter the loan or on what terms. This can, however, be more difficult to prove in commercial bridging cases where borrowers tend to be experienced business people.

How can we help?

Our specialist Banking and Finance Litigation team has substantial experience in dealing with claims in this area. Our lawyers have the knowledge and expertise to review your matter and advise on the most appropriate steps to take. We will always consider your individual circumstances to provide tailored advice at an affordable cost.

If you wish to discuss a potential claim or complaint, please contact Henrietta Frew in our Banking and Finance Litigation Department on 01202 525333, via email at banking@ellisjones.co.uk or by clicking on the “Make an Enquiry” button on our website.