Construction package and lender requirements
Construction package and lender requirements

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

  • Construction package and lender requirements
  • The construction package
  • Lender requirements in relation to the construction package

In real estate development finance transactions, the value of the property will increase as the development is completed. The lender will be lending to a borrower to enable the borrower to finance the development or redevelopment of the property. Therefore, a lender-lending to a property development company—will want to review and take security over the construction documents as well as taking security over the property itself.

There will be obligations on the borrower in relation to the construction documents set out in the financing documentation, in the facility agreement and in the security documents. The Loan Market Association (LMA) has clauses to cover these provisions in its single currency term facility agreement for real estate finance single property development transactions (LMA Development REF Facility Agreement).

The construction package

The construction package, as set out in the LMA Development REF Facility Agreement, will typically include:

  1. the building contract,

  2. the consultant appointments,

  3. the collateral warranties,

  4. the insurance documentation, and

  5. any other document as agreed between the lender and the borrower

The building contract

The building contract is the trade or building contract entered into between the borrower and trade or building contractor. This document will be the key document in a real estate development finance transaction and it will set out the agreement between the trade or building contractor and the borrower. The trade