Where solicitors see the most benefit from FIBA's professional panel
By Markus Malik, managing partner at Adams Solicitors
There is an American acronym - BLUF - which stands for bottom line upfront. So here is my bottom line... upfront. The primary value of having a panel of solicitors is that you, the lender or the broker, have a pre-certified group of professionals from which your client can choose and who can advise them in a way that gets the transaction completed quickly.
In development finance, the documentation is pretty much standard. Having a panel of solicitors ensures that the client’s documents will be dealt with speedily, without undue delay and without the client having to educate the lawyer. Equally, the panel solicitor will advise the client on what documents will be needed and on their content.
The documents that are secured in favour of the lender in development finance are where we see the most benefit from having a panel of solicitors. An illustrative sample of the main documents is set out below:
- the building contract
- the development agreement (if any)
- any leases and sale agreements (including agreements for lease or pre-sale agreements)
- any operating or management agreement
- bonds, guarantees or letters of intent issued by, or on behalf of, the contractors and professionals (an area in my experience that requires a considerable amount of expertise)
- any collateral warranties given in favour of the borrower or obligor
- any acquisition agreement for the site, if the seller owes undischarged obligations to the borrower as purchaser (for example, an obligation to ensure the site is connected to electricity and water supplies).
A lender takes security over documents by way of charge, or by way of an assignment, which can take one of two forms:
- a legal assignment of the contract to the lender, allowing the lender to enforce its rights directly against the contract counterparty
- an equitable assignment, where the benefit of the contract is assigned by the borrower/obligor(s) to the lender. There is no need for an obligor to notify the contract counterparty, but lenders will generally require the counterparty to be served with notice to ensure the lender has priority if there is a default event. Under an equitable assignment, the assignee/lender cannot act directly against the contract counterparty and would thus need the obligor to join in an action to enforce those rights
A charge over the relevant development documents does not transfer ownership but it does encumber the asset, usually giving the lender the right to the income from the asset to discharge the debt.
The lender will primarily be concerned with the following issues when considering taking security over the documents mentioned above:
- defective contracts: the security is only as good as the underlying contract. If the underlying contract is defective, the lender likely will not comfortable. A lender may want to be involved in the preparation and negotiation of the development documents.
- termination on default: a development document may not be as valuable in the event of an obligor’s default or insolvency where the counterparty may be entitled to terminate the contract. Again, a lender will want to protect against this and will scrutinise the client’s development documents to assess this risk before providing finance.
- assignability: Not all development documents may be assignable.
This is when the solicitor is best placed to help the client make sure the documents are in order. An experienced solicitor will know what lenders want generally and what specific lenders want specifically. This can help the client save time and money, and make everyone’s life that much easier.
