Real Estate Finance—Property aspects of representations and warranties and common issues
Real Estate Finance—Property aspects of representations and warranties and common issues

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

  • Real Estate Finance—Property aspects of representations and warranties and common issues
  • What are representations and warranties?
  • What are the usual property specific representations?
  • Borrower’s limitation of scope of representations
  • Repetition of representations
  • What are the consequences of misrepresentation?
  • The legal mortgage

What are representations and warranties?

The representations and warranties (representations) contained in a facility agreement (and/or legal mortgage) are statements of fact that the lender requires to be true in order to make the loan available to the borrower. The borrower makes the representations when the facility agreement is signed and is usually required to repeat the representations at key times throughout the life of the facility.

In real estate investment finance transactions, the lender will require representations concerning:

  1. the legal status of the borrower

  2. the commercial status of the borrower, and

  3. the property

For more information on legal and commercial representations see Practice Note: Representations and warranties.

In real estate development finance transactions, the lender will also require representations concerning the development of the property. See Practice Note: Real estate finance—representations and warranties in development facilities.

The representations are designed to:

  1. limit the lender’s due diligence and place the risk of unknown issues on the borrower

  2. obtain information from the borrower and enable the lender to make informed decisions. Before signing, if the borrower cannot make a particular representation or requires it to be qualified, the lender can decide whether to proceed. After signing, if the borrower cannot confirm that the representations remain true, the lender can impose a drawstop (ie the borrower cannot draw down)—see Repetition of representations below, and

  3. to