This Checklist sets out the key issues to consider when acting for the lender or the borrower on a real estate finance transaction. It assumes that the property being acquired and/or developed is situated in England or Wales. Principal issues include: • ensuring that the documents received from the seller of the property are sufficient to obtain good title to, and effect registration of, the property • confirming that the parties have the power and authority to enter into the transaction • considering whether the transaction involves any entities incorporated or formed overseas that want to buy, sell or otherwise transact with the property. See Practice Note: The register of overseas entities and its impact on loan transactions (Economic Crime (Transparency and Enforcement) Act 2022), and • considering whether the transaction involves the development of a property and whether, in particular, it involves a ‘higher-risk building’. See Practice Note: Building Safety Act 2022—implications for finance transactions involving real estate and real estate development • ensure that the following are passed to the lawyers dealing with the property aspects of the transaction

Many of the usual conditions precedent (CPs) for a typical syndicated loan facility will also be applicable to a real estate finance transaction. For information on those conditions precedent, see Practice Note: Conditions precedent. In a real estate finance development transaction the borrower will borrow money to not only purchase the property but also to develop the property. Therefore many of the conditions precedent applicable to real estate finance investment facilities agreements will also apply to development facilities, with additional conditions precedent required in relation to the development side of the transaction. This Practice Note looks at the real estate finance specific conditions precedent which typically apply in a real estate finance development transaction. For information about conditions precedent in real estate finance investment facilities, see Practice Note: Real estate finance—conditions precedent and the mechanics of drawdown in investment facilities. Purpose of conditions precedent in a real estate development finance transaction Conditions precedent are included in finance documents for the benefit of lenders. Conditions precedent

Many of the usual conditions precedent (CPs) for a typical syndicated loan facility will also be applicable to a real estate finance transaction. For information on those conditions precedent, see Practice Note: Conditions precedent. This Practice Note looks at the real estate finance specific conditions precedent which typically apply in a real estate finance investment transaction. For development facilities, there are extra conditions precedent which need to be satisfied and different drawdown mechanics. These reflect the fact that the property being purchased will be developed over the term of the facility and the plans for development will need to be approved by the lender before funding takes place. For more information, see Practice Note: Real estate finance—conditions precedent and the mechanics of drawdown in development facilities. Purpose of conditions precedent Conditions precedent are included in finance documents for the benefit of lenders, giving them justification for refusing to lend if they are not sufficiently comfortable about the issues on which they have based their credit appraisal. In

Many of the usual covenants for a typical syndicated loan facility will also apply (in some form) to a real estate finance development transaction. For information about those covenants, including what covenants are and why they are used, see Practice Note: Covenants. In a real estate finance development facility the borrower will borrow money to not only purchase a property but also to develop it. Therefore the vast majority of covenants applicable to a real estate finance investment facility apply equally to a real estate finance development facility, with some differences and additional covenants required in relation to the development side of the transaction. For more information about covenants in real estate finance investment facilities, see Practice Note: Real estate finance—covenants in investment facilities. This Practice Note looks at the specific covenants which typically apply in a real estate finance development transaction. Purpose of covenants Covenants (or undertakings) impose a series of positive and negative obligations upon the borrower with which it must comply during the course of the loan (in contrast to

Many of the usual covenants for a typical syndicated loan facility will also be applicable to a real estate finance investment transaction. For information on those covenants, including what covenants are and why they are used, see Practice Note: Covenants. This Practice Note looks at the specific covenants which typically apply in a real estate finance investment transaction. There are additional covenants which need to be complied with in real estate finance development facilities. These reflect the fact that the property which is the subject of the loan will be developed over the term of the facility agreement. For more information, see Practice Note: Real estate finance—covenants in development facilities. Purpose of covenants Covenants (or undertakings) impose a series of positive and negative obligations upon the borrower with which it must comply during the course of the loan (in contrast to representations, undertakings will remain in force constantly throughout the life of the facility). The covenants set out the circumstances under which the lender is willing to keep the loan outstanding. If

Real estate finance development facilities involve a loan to the borrower for it to purchase and develop a property (or a group of properties) or to develop a property (or group of properties) that it already owns. This financing is secured against the property, the development documentation and the future cashflow generated by the property (ie rental income) once the development (or part of it) has been completed. The due diligence carried out in relation to the property and the planned development is one of the most important aspects of the transaction prior to the funding being provided. It is also important that the development is closely monitored throughout the development phase of the project and thereafter that the value and condition of the property are maintained. The Building Safety Act 2022 (BSA 2022) introduced fundamental reforms to the law and regulation of building safety. While the changes brought about by BSA 2022 will be of significant importance to construction lawyers, its provisions will also be highly relevant to banking and finance lawyers acting

This Practice Note examines the key parties in real estate finance involving the development of property. It does not deal with the lender or other finance parties (see Practice Note: The finance parties). Borrower The borrower will typically be purchasing the property to be developed or may already be the owner of the property. In the construction contracts, the borrower will usually be referred to as the employer, client or developer. SPV or trading entity? In real estate finance, it is common for the borrower to be a special purpose vehicle (SPV) (also known as a special purpose company or SPC). This means that the borrower company is set up or purchased 'off the shelf' specifically for the proposed transaction (ie purchasing, owning, developing and operating the property). In any SPV financing, the borrower's only activities (and therefore assets and liabilities) will be those related to the transaction. The facility agreement will typically include provisions which give the lender comfort on these points, eg: • representations that the borrower has not conducted any business

Many of the usual events of default for a typical syndicated loan facility will also apply (in some form) to a real estate finance transaction. For information about those events of default, including what events of default are and why they are used, see Practice Note: Events of default. This Practice Note examines the types of additional events of default which are commonly found in real estate finance investment and development transactions. Purpose of events of default Rather than relying on general contract law for a remedy if the borrower breaches the loan agreement, most facility agreements include a mechanism under which a lender can, if it chooses, take certain actions if the borrower breaches the loan agreement or certain other events occur. The events that allow the lender to take such action are normally specifically set out in the facility agreement and are referred to as 'events of default'. If there is an event of default that is continuing, the lender will normally be allowed to take any or all of the following actions:

This Practice Note looks at the specific financial covenants which typically apply in a real estate finance transaction. Purpose of financial covenants Financial covenants are used in many different types of commercial finance transactions (see Practice Note: Introductory guide to financial covenants). Financial covenants are a specific type of covenant or undertaking. They are promises to meet or comply with certain financial thresholds. See Practice Note: Introductory guide to financial covenants—What are financial covenants? Financial covenants enable the lender to monitor the financial performance of the borrower. They have the following benefits for a lender: • they test the borrower's financial performance on an objective, easily measurable basis • they give an indication of financial difficulty before the borrower has actually defaulted on its payment obligations, giving the lender the chance to intervene earlier than if it had to wait for non-payment to occur, and • if breached, they enable the lender to protect itself by calling an event of default and accelerating the loan/enforcing security, or potentially requiring mandatory prepayment For more information

One way for banks and other financial institutions to generate revenue is by charging interest on the loans they make. In order for a bank or financial institution to make money through its lending activities, the interest it charges must at least cover its own costs. See Practice Note: Introductory guide to interest in loan agreements—Cost of lending. Many of the interest and interest period provisions for a typical syndicated loan facility will be very similar to those used in a real estate finance transaction. This Practice Note focuses on the interest and interest period provisions which are specific to real estate finance (REF) transactions. Where to start with drafting interest and interest period provisions in a real estate finance transaction The interest and interest period provisions for a particular transaction are usually agreed at term sheet stage before drafting the facility agreement. It will be important to check the terms of any term sheet before drafting the facility agreement. LMA real estate finance documentation The LMA has clauses to cover

Real estate finance investment facilities involve a loan to a borrower for it to purchase a property or a group of properties (or to refinance such a purchase). The financing is secured against the property being purchased (or refinanced) and the cashflow generated by the property (ie rental income). The due diligence carried out in relation to the property is one of the most important aspects of the transaction prior to the funding being provided. It is also important that the value and condition of the property is maintained throughout the term of the financing. The bank account arrangements are very important in real estate finance investment transactions and can be quite complex. In a straightforward transaction, the rental income is typically paid by the tenants into a secured bank account and used to pay the interest and capital on the loan. Any excess cash can usually be swept into the borrower's current account and withdrawn by the borrower. This Practice Note explains the key features of a typical real estate finance investment

What does this guide cover? This guide introduces the key aspects of real estate finance and acts as a guide to our Banking & Finance resources for those with no or limited knowledge of the area. It covers the key terminology, features, parties and documents and the key tasks for finance lawyers in real estate finance transactions. It focuses on issues relevant to finance lawyers acting on real estate finance transactions. For information on the issues relevant to real estate lawyers in real estate finance transactions, see Practice Note: The role of a real estate lawyer in real estate finance transactions. For a more detailed introduction to real estate finance, see Practice Note: Introductory guide to real estate finance transactions. For a more general guide to our banking and finance resources, see Practice Note: Banking & Finance—new starter guide. What is meant by real estate finance? Real estate finance typically involves the provision of debt to fund investment in, or raise finance from, real estate assets. The borrower typically combines external funding,