An obligation, which is not a servitude, that binds the owner of property and is for the benefit of neighbouring property.

This Checklist sets out issues to consider when drafting real burdens and title conditions in dispositions in Scotland. It considers specific real burdens relating to use restrictions, alterations and works and personal real burdens. For further information on what real burdens are and their creation and interpretation, see Practice Note: Real burdens in Scotland—creation and interpretation. In relation to real burdens dealing with maintenance obligations, see Practice Note: Real burdens dealing with maintenance obligations in Scotland. In this Checklist, the property subject to the burden is referred to as the ‘burdened property’ and the property with the benefit of the burden, the ‘benefitted property’. Drafting considerations When drafting a disposition, consider first whether it is necessary to impose real burdens. It may be sufficient to rely on: • common law, eg the common laws regarding boundaries • planning law (which will have a considerable impact on proposed land uses) • the Tenement Management Scheme (introduced by section 4 and Schedule 1 to the Tenements (Scotland) Act

When are maintenance provisions required? Ownership of property carries with it, by definition, responsibility for maintenance of that property. The owner of property therefore has discretion to decide when, and to what extent, maintenance of the property is to be carried out, and the standard to which that maintenance is to be completed. Where property is held communally, this can cause particular issues eg: • in the case of common property, all of the owners of that property collectively have the responsibility for maintenance. It is self-evident that this could on occasion give rise to disagreement among the owners as to the level of maintenance required • where someone has a common interest (in, eg a boundary wall, that party may have differing views from the owner as to the appropriate level of maintenance required) • amenity land may or may not be common property, but owners of property in the vicinity of that land have an interest in that from the amenity perspective of the development

What are real burdens? A real burden is an encumbrance (for example, a restriction on use) on one property (the burdened property) for the benefit of another property (the benefited property). Real burdens run with the land and can be enforced by and bind successors in title to the original owners of the benefited and burdened properties. Real burdens are governed by the Title Conditions (Scotland) Act 2003 (TC(S)A 2003) which came into force on the appointed day, 28 November 2004. Real burdens must: • relate in some way to the burdened property and must be for the benefit of the benefited property and not just for the benefit of the benefited owner. This is known as the praedial rule first articulated in Tailors of Aberdeen (1840) 1 Rob. App. 296 (not reported by LexisNexis®) which held that the relationship to the burdened property must not merely be that the obligated person is the owner of the burdened property (see further commentary on ‘Praedial benefit’ below). An exception is made to this rule for personal

Enforcing real burdens, title and interest Who can enforce real burdens? A real burden may be enforced by any person who has both title and interest to enforce it. The owner of the benefited property together with the following people have such title: • a person who has a real right of lease or proper liferent in the benefited property (or has a pro indiviso share in such right) • a person who is the non-entitled spouse or non-entitled partner of an owner or of a person mentioned directly above and who has occupancy rights in the property Only the person benefited has title to enforce a personal real burden. Who are real burdens enforceable against? An affirmative burden is enforceable against the burdened owner only. A negative or an ancillary burden is enforceable against: • the owner or tenant of the burdened property, or • any other person having the use of that property Continuing liability of former owner for affirmative burdens Section 10 of Title Conditions (Scotland)

The development of property can be carried out by different procurement methods. For more information, see Practice Note: Real estate development finance—introductory guide to forms of procurement. The most common forms of procurement for the development of a property are: • design and build procurement • traditional procurement, and • management contracting The most frequently used method of procurement in the UK is the design and build method. The procurement method will determine the nature and content of the development documentation. The development documentation is a key part of any real estate finance transaction which involves the development of property. This Practice Note explains the key development documentation which is involved in development, ie: • the building contract • parent company guarantees and bonds • the sub-contracts (which may include sub-contracts for design, in design and build procurement) • the professional consultant appointments • the insurances • collateral warranties (or third party rights), and • planning permission The lender will typically want to take security over the borrower's rights

Collateral warranties are some of the most important documents in real estate finance development facilities. They are provided by the key members of the development team to each of the lender and the borrower. They provide a contractual link were there wouldn't normally be one and often include important step-in rights for a lender or borrower (as applicable). This Practice Note explains: • what collateral warranties are • how collateral warranties are used in real estate development facilities, and • the rights conferred by collateral warranties What is a collateral warranty? A collateral warranty is a contract which is collateral to (or sits alongside) an underlying contract. In the context of real estate development facilities, collateral warranties typically sit alongside the key development documents (see Practice Note: Real estate development finance—introduction to the development documentation). The collateral warranty creates a contractual link where there wouldn't normally be one, thereby enabling a third party to have a direct contractual relationship with the key members of the development team. The third party

The development documentation is a key part of any real estate finance transaction which involves the development of property. For more information, see Practice Note: Real estate development finance—introduction to the development documentation. The nature and content of the development documentation will be determined by the form of procurement which is chosen for the development. Procurement, in this context, means buying services for development works. This Practice Note explains the key features of the most common methods of procurement for developing a property: • design and build procurement • traditional procurement, and • management contracting The design and build approach is typically the preferred procurement method for lenders because it provides the best option for cost certainty. It is the most frequently used method of procurement in the UK. The management contracting method is the most risky in terms of cost and is generally disliked by lenders (and is less commonly used than the other methods of procurement in the UK construction market). Design and build procurement The design

Real estate finance describes the legal and commercial arrangements by which lenders provide debt secured on land and buildings, and borrowers raise capital for acquiring, developing, refinancing or investing in property. It is a descriptive term rather than a defined legal concept, and spans multiple structures, including term loans, development facilities, investment loans, mezzanine finance and syndicated lending.In England & Wales and Northern Ireland, real estate finance typically involves security by legal mortgage and fixed and floating charges over property, rental income and related rights. In Scotland, security is commonly taken by standard security over heritable property. In Ireland, mortgages and charges over land and associated assets are used. Across all jurisdictions, documentation will usually include facility agreements, security documents, intercreditor agreements and, where relevant, hedging arrangements.Key legal issues include due diligence on title, planning and leases, creation and perfection of security, priority, enforcement strategies, financial covenants, representations and undertakings, and compliance with regulatory and consumer protection regimes where applicable. Real estate finance is central to commercial property investment, development funding, restructurings and distressed asset sales in the UK and Irish markets.

The Loan Market Association (LMA) has produced two types of English law term sheets for real estate finance (REF) transactions. They are: • the LMA Term Sheet for use with single currency term facility agreement for real estate finance multi-property investment transactions (the LMA REF Investment Term Sheet), and • the LMA Term Sheet for use with single currency term facility agreement for real estate finance single property development transactions (the LMA REF Development Term Sheet) This Practice Note refers to the risk-free rate versions of the LMA REF Investment Term Sheet and the LMA REF Development Term Sheet, which together are referred to as the ‘LMA REF Term Sheets’. The LMA REF Term Sheets include all the usual provisions that you would expect to see in a term sheet for a loan transaction. This Practice Note focuses on the key features of the LMA REF Term Sheets that are specific to real estate finance transactions. For information

In real estate finance transactions, the facility provided is usually a committed facility and exactly how and when the facility is to be repaid will be set out in the facility agreement. The facility agreement will normally also set out: • whether or not the borrower is allowed to repay the facility prior to the set repayment date(s) (ie make voluntary prepayments), together with any parameters for voluntary prepayments such as minimum amounts or fees, and • whether there are any events that require the borrower to repay all or part of the facility early (ie make mandatory prepayments) Many of the provisions for voluntary and mandatory prepayment, repayment and cancellation for a typical syndicated loan facility will be very similar to those used in to a real estate finance transaction. For more information, see Practice Note: Repayment, prepayment and cancellation. This Practice Note examines the voluntary and mandatory prepayment, repayment and cancellation provisions which may specifically apply in a real estate investment finance or development

In a typical real estate finance transaction, the lenders rely heavily on the rental income generated by the property for repayment of the loan. In development finance transactions, the lenders will want to ensure that the borrower has enough cash to finance the development. As a result, real estate finance lenders will impose strict restrictions on how the borrower uses its cash in both investment and development finance transactions. This Practice Note examines the key clauses which impose these restrictions in real estate finance facility agreements. Where to start with drafting the bank account provisions in a real estate finance transaction The various bank accounts which will be required and the restrictions on the operation of each bank account for a particular transaction are usually agreed at term sheet stage before drafting the facility agreement. The Loan Market Association (LMA) has published term sheets for real estate finance transactions which include bank account provisions. See Practice Note: Real estate finance: Loan Market Association real estate finance term sheets for investment transactions