Development finance

Additional content on real estate development and funding can be found in the Development, structures and funding—overview topic.

Real estate development finance involves the acquisition and funding of a development site and the funding of a new development on it. Once developed the property may be sold by the developer to an investor or retained by the developer for its own investment purposes. The loan will be secured both on the property and the developer's rights under the constructions documents. A funder will be particularly interested in:

  1. the value of the site compared to the loan: The development site whilst under development will be worth considerably less than when the development is completed. The level of pre-lets or sales and, in the case of pre-lets the covenant strength of prospective tenants will be important criteria for the full development loan monies to be advanced to complete the project

  2. the development cost: the funder will want to ensure that the cost of designing, building, managing, letting or selling the development are well controlled and within budget in order that the project cost does not exceed the value of the

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Insolvency, declarations of trust, loan agreements, artificial asset protection, sham transactions, transactions defrauding creditors, interspousal asset transfers, change of position defence and wife’s entitlement to share of husband’s assets (Sayers v Dixon)

Restructuring & Insolvency analysis: The court held that six declarations of trust (DoTs) executed by the transferor (Mr Dixon) in favour of his wife (Mrs Dixon) constituted transactions defrauding his creditors within the meaning of section 423 of the Insolvency Act 1986 (IA 1986) and that two of them, purporting to transfer all his future assets and income to Mrs Dixon, along with an accompanying loan agreement, were shams which were void and ineffective. It set aside the DoTs and ordered Mrs Dixon to restore the value of three transferred properties (which had been converted into £551,589 cash) to Mr Dixon’s trustees in bankruptcy (trustees) together with interest of £101,726. It also ordered an account to be taken of the funds that had been transferred to Mrs Dixon or on her behalf by Mr Dixon over the seven years between the date of the DoTs and his bankruptcy. The court dismissed Mrs Dixon’s defence of change of position to the trustees’ claim for restoration, finding that even if such a defence were generally available (which is unclear), she had not acted in good faith and could not rely on it. It also dismissed her defence that, having been married to Mr Dixon for many years, she was entitled to half his assets and/or an entitlement to a share of them by virtue of a right to be maintained. Written by Jonathan Lopian, barrister at New Square Chambers, who acted for the successful claimants.

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