Agreements for lease with development obligations—security for the funder
Agreements for lease with development obligations—security for the funder

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Agreements for lease with development obligations—security for the funder
  • Charge
  • Security assignment
  • Collateral warranties

A funder will often only agree to fund a development if it has been pre-let. The existence of the pre-let(s) comforts the developer’s funder that its lending position is not unduly exposed. If the developer retains the development (voluntarily or otherwise) after building work has finished, the developer will have an income with which to service the loan. Alternatively, the income should attract an investment purchaser to buy the development, which may repay the loan in full.

This assumes that the developer survives long enough to complete the project. If the developer falls by the wayside, its funder needs to be able to take the benefit of the numerous contractual arrangements that the developer has negotiated with the intention of pushing the development through to completion (although this is not always possible).

Therefore, the funder will require security over, amongst other things, the agreement(s) for lease that the developer has entered into with prospective occupational tenants, and also possibly the purchaser of the development for the grant to it of its long leasehold investment interest.

This security can be provided by way of:

  1. charge, or

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