Security in real estate finance transactions

Lenders in real estate finance transactions will usually look to take a full suite of security over all of the assets of the borrower, including but not limited to:

• • the land itself, including any fixtures forming part of that land and any fittings or equipment used on the land;
• • the borrower’s rights to any rental income generated from the commercial exploitation of the land;
• • the positive balance of the borrower’s key bank accounts;
• • the borrower’s rights to the proceeds of insurance claims;
• • with respect to development finance, the borrower’s rights under construction and development contracts and any takeouts (agreements to lease and/or any presale contracts);
• • any shares or units in other entities that the borrower has rights to; and
• • the personal property of the borrower.

This guidance note details how security over the assets listed above is typically structured and documented in a real estate finance transaction. It also highlights the key provisions of the security documents.

See Security in real estate finance transactions.

Taking security over development contracts

The development documents are key to any real estate finance transaction involving property development. They deal with the nature of the development, the development team’s relationships and responsibilities and the cost of the development. Accordingly, the lenders will typically take security over all the rights of the borrower under the key development contracts.

This guidance note outlines:

• • the key development contracts and insurances in respect of which security is typically taken; and
• • how such security may be taken.

See Taking security over development contracts.

Side deeds in real estate finance

A side deed (also commonly referred to as a “tripartite deed” or a “multiparty deed”) is an agreement that supplements or sits with the primary contract and is required to manage variations and termination of that contract. Side deeds are entered into between the lender, the relevant project counterparty (such as a builder) and the borrower and are intended to allow the lender to keep the project performing if the borrower defaults on any of its obligations under the relevant project document.

This guidance note discusses:

• • the project counterparties who will typically be required by the lender to enter into a side deed;
• • the key provisions included in side deeds; and
• • practical tips for negotiating a builder’s side deed in the context of a development finance transaction.

See Side deeds in real estate finance.