Construction loans are generally loans which are to be used to finance the construction of a building.
Typically, developers obtain a loan to assist with buying a development site on which they intend to develop. They will also seek either an extension of any current loan or an entirely new one to assist with the costs of the construction.
Usually, and commonly in today’s market, financiers set down various preconditions which must be satisfied prior to allowing monies to be drawn down on a construction loan.
Such preconditions can include:
The documents which set out the terms and conditions of loans of this nature are usually complex, particularly where there are intercompany and personal guarantees and various forms of security. In light of this, it is recommended that legal advice be obtained as to the terms of such loans and mortgages prior to entering into agreements which contain serious obligations and can have disastrous consequences for those who do not understand the terms they are entering into.
Builder Side Deeds, also commonly known as Tripartite Agreements, are agreements between the developer (or Principal), builder and financier which set out the parties’ rights and obligations with respect to the completion of building works and events of default, in particular by the Principal under its loan or under the building contract.
Where there is a loan agreement, the financier may require that the builder enter into a Builder Side Deed in which the builder allows the financier specific powers to step-in and cure rights where there is some default by the Principal.
There are numerous issues to consider in such agreements and the proper advice as to the terms of such agreements is highly recommended (and those terms negotiated if necessary) before they are entered into.
With all such documentation relating to loans and otherwise, where numerous terms and conditions exist and must be complied with, it is critical you obtain clear and impartial advice so that you can understand what is expected and so as to avoid common misunderstandings and pitfalls, which can be devastating, that usually arise from a failure to treat these documents with the attention they need.
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