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Lenders generally look to fixed charge security over properties for their recourse in the event that a registered social landlord is unwilling or unable to pay. But sometimes they also require the borrower to grant a floating charge.

This is a form of security that "floats" over all the borrower's assets, allowing it to deal with, dispose of and acquire those assets without restriction. At some point, generally when the lender has become entitled to enforce its security, the floating charge "crystallises" into a fixed charge over all the assets – properties, generally – of the borrower at that time, giving the lender priority over other creditors and control over the realisation process.

In the RSL finance market, such charges are generally taken as a defensive measure, to ensure the lender is in control of the disposal process or the realisation of the properties that are subject to the fixed charge. The holder of a floating charge over most or all of an RSL's assets can stop the appointment of others in relation to those assets, which could prevent or hinder the process whereby the lender realises its fixed charge security.

This is why lenders have historically taken floating charges when lending to RSLs that are companies, and in certain circumstances reserve the right to take such charges from associations that are industrial and provident societies.

They are called ‘lightweight’ because they don’t give the full range of rights a lender seeks from other types of floating charge

In many other markets, lenders will take such floating charges, not only to obtain these protections, but also to get access to the borrower's other assets in an enforcement situation. But generally, in the RSL market, this is not the case – floating charges are taken merely for the protective and defensive reasons I have described. They are not required to give the full range of rights and advantages a lender seeks from other types of floating charge: because of this, they are often called "lightweight" floating charges.

This doesn't mean, however, that the form of floating charge taken from RSLs is much different from that taken elsewhere. It gives the lender the same rights and advantages offered to lenders who take the wider-ranging type of floating charge.

There is a case for saying that this is inappropriate: it puts lenders in a more advantageous position in relation to other creditors than they seek or need. If the floating charge is taken merely for defensive reasons, shouldn't it merely provide those protections without giving any other rights? More specifically, surely these floating charges should only crystallise when the lenders need them to, in order to provide the protections they require? They should apply only when there is a move by any other creditor to appoint insolvency practitioners that could deny the lenders control over their fixed charge security.