What is a facility agreement?

Many construction projects, particularly larger ones, require external funding from banks or other lenders to finance them during the construction process. The borrower will typically enter into a facility agreement with the lender (or group of lenders), which records the terms and conditions of the arrangement.

Typical structure

The detailed contents of a facility agreement will differ depending on a number of factors including the type of facility being offered and what the facility is to be used for. The principal aim of a facility agreement is, however, to ensure that the lender's capital is repaid when due and that the lender makes the profit it expects on the loan at the time agreed. Most facility agreements will therefore share very similar types of provisions, often arranged in a similar basic structure. This Practice Note discusses the usual components of a bilateral, committed, facility agreement to a corporate borrower for a construction or development project. Please note that in many cases the parent company of the borrower may also be required to be a party to the facility agreement, if it is required to act as guarantor. If this is the case, then many of the provisions, including in particular, representations and warranties, covenants and events of default will apply to this company as well.

A construction project facility agreement will typically include