The following Property practice note provides comprehensive and up to date legal information covering:
A developer has a far greater prospect of securing both:
development finance from a funder to fund the costs of development works, and
a commitment from an investment buyer to buy the completed development
if it can demonstrate that the development is pre-let (ie it is the subject of a sufficient number of agreements for lease with prospective tenants).
Negotiations for agreements for lease take place at a very early stage in the lifetime of the development project, and long before many other issues have been satisfactorily resolved. To ensure that neither the developer nor the tenant is irrevocably committed before a satisfactory resolution has been achieved, an agreement for lease may typically be subject to pre-conditions.
Given that developers do not usually self-fund building costs an agreement may be conditional on the developer securing an acceptable offer of interim finance. This will usually be obtained either from the prospective buyer of the completed development (under a forward financing arrangement) or from a third party lender (on terms which are more akin to an overdraft facility than a loan, with the developer being entitled to draw down funds at pre-agreed times, up to the funder’s maximum commitment).
Unless market conditions are such that demand for investment property amongst buyers is high (and give
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