LexisNexis Practical Guidance®
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Priority/subordination agreements

If a secured lender is prepared to allow repayment by the borrower to another secured lender (over the same asset), while the borrower is solvent, but is concerned that particular priority arrangements will operate if either of the lenders enforces its security, the lenders may agree to enter into a deed of priority.

Typical arrangements under a deed of priority include:

  • the holder of the first security may agree that a second security will have first priority to either a specified amount (of principal plus interest and costs) or (less commonly) for all the monies secured by the second security; and
  • the holder of the first security may agree that its first priority will be limited to a specified amount plus interest and costs.

This guidance note looks at priority arrangements, including “subordination agreements” under the PPS Act. It introduces to legal practitioners the industry model documents that may be utilised in a transaction, and considers the issues that a legal practitioner may encounter when drafting, reviewing or negotiating of a deed of priority with subordination provisions.

See Priority/subordination agreements.