Insurance provisions in real estate finance transactions
Insurance provisions in real estate finance transactions

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

  • Insurance provisions in real estate finance transactions
  • Insurance cover in a real estate finance transaction
  • Provisions of the insurance in a real estate finance transaction
  • Information and borrower compliance with insurance requirements in real estate finance transactions
  • Insurance proceeds in a real estate finance transaction
  • Insurance conditions precedent in a real estate finance transaction
  • Additional insurance issues to consider in a real estate development finance transaction

In real estate finance transactions, the property is the main asset of the borrower and the security package taken by the lender will be based around taking adequate security over that property. As the property itself is of utmost importance, the lender will want to ensure that the insurance in place over the property is adequate and the lender will also want to take security over the borrower’s right to any insurance proceeds (see Practice Note: Security in real estate finance transactions).

There will be extensive insurance obligations on the borrower set out in the financing documentation, typically in the facility agreement or the security documents. The Loan Market Association (LMA) has clauses to cover these provisions in its:

  1. single currency term facility agreement for real estate finance multi-property investment transactions (LMA Investment REF Facility Agreement), and

  2. single currency term facility agreement for real estate finance single property development transactions (LMA Development REF Facility Agreement),

together the LMA REF Facility Agreements.

Insurance cover in a real estate finance transaction

The LMA REF Facility Agreements set out standard lender requirements as to the insurance cover the borrower will need to effect over the property in both a real estate investment finance transaction and a real estate development finance transaction. It is important that the insurance in place over the property is reviewed on