Whether cost overruns are financed by the borrower or the promoter, the lender should generally not allow a drawdown when the cost overruns (actual and anticipated) are not financed. The creditor must ensure from the outset that he is satisfied with the financial soundness of the party financing any cost overruns and, where appropriate, take additional protective measures, for example in the form of a cost overrun guarantee. As the Irish BTR/PRS industry continues to evolve, investors and developers will adapt transaction structures to balance their respective desires for maximum returns with the desire for a collaborative approach through development. Where developers have little history of product delivery, investors are likely to switch to forward sales structures. However, with many developers in Ireland now having a good track record when it comes to punctuality and high performance, they are now likely to see an opportunity to move towards advanced fund structures. This is corroborated by the fact that the pool of investors participating in term financing arrangements increases with the maturity of the market. In particular, European and US investors have extensive experience in the Irish market at present, which, combined with their experience in term financing in other jurisdictions, allows them to fully weigh the benefits of a forward fund agreement as outlined above. Buyers should be wary of forward sales that resemble forward financing agreements. A forward sale is a viable transaction structure, but it does not offer the tax advantages of a forward financing agreement. An experienced real estate lawyer can help you determine if a term financing agreement is the most appropriate and advantageous structure for your transaction. As with a traditional development transaction, it is important to ensure that tenant-specific provisions are followed up to the FFA in each pre-tenancy agreement to ensure that the developer provides a final product that meets the tenant`s requirements. At best, non-compliance by the developer could result in a downward revision of the rent; In the worst-case scenario, the tenant may not be required to sign the lease, resulting in the borrower owning a vacant property built to the specifications of a particular tenant who will no longer rent the property. In addition to the FFA, the documents listed will be familiar to lenders lending in partially debt-financed developments.

Where these documents differ is in terms of the interaction between each of them, which will be explored below. Before entering into the mechanics of a forward financing operation, it is useful to explain what exactly term financing is and how it differs from traditional development financing. The SDLT is generally levied on the basis of the consideration for the land acquired under the purchase contract. In the case of term financing, it may be limited to the country in its state at the time of closing the sale (sdlt being payable only on the reduced price payable for the country in that state). In comparison, a traditional purchase of cropland or a forward sale of SDLT would take advantage of the price of cultivated land. Unlike forward buying, the sale – and therefore the transfer of ownership – takes place before the completion of the construction work and the price is paid in advance, usually in instalments throughout the construction process. It also means that, with the exception of term financing regulated under the Breyne Act, the parties must contractually agree on the process and the allocation of risk throughout the construction process. Whether you are a buyer, seller or developer, First4Lawyers can help you with the term financing process and help you ensure that the transaction you close does not put you at a legal disadvantage. The operation of the facility agreement (between the borrower and the lender) with the FFA (between the borrower and the promoter) should be carefully examined.

Most development finance loan agreements, including the LMA model for commercial real estate finance development transactions, are designed on the basis that the borrower is also the developer. Any standard model therefore requires an adjustment to take into account the fact that the borrower enters into a contract with a third-party development entity and that it is the developer who essentially manages the development and has a direct contractual relationship with the contractor. Below is a non-exhaustive list of some of the main areas that are often negotiated: Since the investor-buyer is on board early, he can adapt the development and stay involved throughout the development process. From a price perspective, we usually see the same incentives as with a forward purchase. From an economic point of view, both parties should measure the impact of advance payment on their own returns; the developer-seller who benefits from a lack of initial financing of the project, but the investor-buyer must call the capital at an early stage without generating rental income. External financing agreements are also tailor-made for this type of transaction, as the parties agree (strictly) on the conditions that must be met during the construction phase. Other term financing transactions (e.g. B non-residential real estate, share transaction) do not fall within the scope of the Breyne Law. In general, we find that the parties generally apply similar principles in their contractual agreements. In a term financing structure, the parties agree to sign a purchase contract, either for the shares of the company that owns developing real estate or for the property itself, without suspensive condition for the completion of the work. To mitigate the risk to the investor-buyer, the parties generally agree on a condition precedent for final approvals.

If an agreement exists before the lease, the consultants must ensure cohesion between it and the FFA. Lease triggers must match the triggers for final payments to the developer. In the absence of cohesion, this could lead to a problematic “gap” where the developer has the right to withdraw from the development before the tenant is forced to enter into the lease. Term financing agreements (also known as development finance agreements) are entered into when a person financing the construction of a building provides interim financing to enable development. It allows investors to access a fixed return on their investments. For the investor, such structuring has the advantage that the customer`s construction/insolvency risk does not have to be covered, that less project development know-how is required and that the purchase contract is much simpler, while on the other hand, the participation rights in the construction/lease phase are less diversified and the purchase price is likely to be higher. Care must be taken to ensure that SDLT is not charged on the entire consideration provided by the borrower, including amounts paid to the seller/developer for development work. This is explained in more detail below. Iain Morpeth, head of Ropes & Gray`s international real estate investment and transaction practice, discusses term financing as a source of mortgages. In a forward purchase structure, the parties agree to sign a purchase agreement, either for the shares of the company that owns properties under development, or for the property itself under the condition precedent of completion of the work (in most cases, preliminary acceptance). .