Buyers should be wary of futures sales that resemble term financing agreements. Futures is a viable transaction structure, but does not offer the tax advantages of a term financing agreement. An experienced real estate lawyer can help you determine if a forward funds agreement is the most appropriate and advantageous structure for your transaction. Palmer Capital and Cubex Land have completed a busy 2016 with the completion of the 194 Built-to-Rent-development homes at Grainger plc for £45.7 million Willmott Dixon has been appointed as the main contractor and completion is scheduled for 2019, with Cubex Land overseeing the management of the development. Ed Chantler, CEO of Total Developments, said: “The Shoosmiths team has been very active in helping us get this deal over the line, especially under such tight deadlines. We thank them for their continued support and look forward to the resumption of cooperation. Whether you are a buyer, seller or real estate developer, First4Lawyers can advise you on the financing process from the front and help ensure that the agreement you have reached does not penalize you legally. Similarly, we can help developers ensure that the funder`s funding promises in advance are secure and that the agreement protects your interests. The main disadvantage of forward funding agreements for developers may be that the final price is set, but interest rates and development costs can vary during the project. Therefore, developers may lose if the agreed payment before the transaction does not cover the full costs of development. The borrower and, ultimately, the lender will take care of controlling cost overruns, that is: Expenses exceeding the agreed planned budget (also known as developer evaluation). In the case of forward funding operations, there are different possibilities of exceeding refinancing costs, either through the borrower; or the developer; or both, depending on the structure of the agreement. If there is a winning payment, it is not uncommon for the developer to demand from the borrower the protection of his winnings. This can take the form of a guarantee or security.
Most lenders would expect any collateral granted by the borrower to the developer to be secondary and fully subordinated to any collateral that the borrower gives to the lender. However, depending on the structuring of financing in the future, interconnection agreements between lenders and developers may remain a central area of negotiations between the parties. Forward financing therefore results in additional complexity from a third-party developer, which appears to impact key development documents, financing agreements, and security policy packages granted to the lender. In its structure, futures selling is fundamentally different from term financing, has different payment mechanisms and can have significantly different tax effects. It is therefore necessary to ensure from the outset that this is indeed advanced financing envisaged by the parties. Our team of real estate lawyers can help buyers ensure that they have watertight development obligations and that the forward funds agreement is appropriate for the transaction. We can also protect your rights if the developer does not meet their commitments. As a general rule, the lender will also seek from the borrower a security agreement or a direct agreement to ensure the contractual association between the lender and the developer. However, the lender can be satisfied with the usual guarantees and guarantees of the borrower, in combination with the guarantees of the contractor and the professional team. Much depends on the negotiating position of the parties, as the developer will also be concerned about ensuring that their payment and liability position is protected….