Security Documents for Real Estate Finance

When a company or individual borrows money, the lender will need to take security for the funds they are lending to ensure they will be repaid.

For real estate finance matters, the security that the lender will take will depend on whether the borrower is a company or an individual, the borrower's financial strength and the loan's value.

The security is especially important if the borrower is a 'special purpose vehicle' (SPV) set up specifically for that transaction and is borrowing money for development, as they will have no financial history and its assets will usually be limited to that one property.

In transactions where the borrower is a company, the lender is also likely to take a debenture over the company.

The debenture is all-encompassing and will cover all of the company's assets.

It will usually include both a fixed charge over specific assets and a floating charge over all other assets of the company.

The debenture must be registered at Companies House, and lenders will sometimes also require registration at the Land Registry in respect of any fixed charge over a property.

The lender may require other security documents depending on the type of transaction and the borrower.

For example, if the loan is to fund development, the lender may request a charge over the building contract.

For development funding, lenders also usually require collateral warranties from the building contractor and professional consultants involved in the construction.

The construction contracts will be between the borrower and the consultant, so the lender, as a third party, would not be able to rely on the undertakings in that contract.

However, a collateral warranty means that the lender can take action against the consultant in the event of a breach of the contract.