If you are undertaking a development project, you would most likely obtain finance to fund the project. It is therefore crucial to understand the requirements that financiers usually look for in a pre-sale contract.

Financiers usually require you to have enough qualifying pre-sale contracts that meet their threshold before lending any funds to you.

What is considered a qualifying pre-sale contract?

Some common elements are:

1. At Arm’s Length

The contract exchange should be between independent parties with equal footing.

2. No right of Rescission

Sometimes contracts include the right of rescission for purchasers if the vendor becomes insolvent. Financiers typically require contracts not to provide for this right.

Should the developer become insolvent, the financier wants to ensure that they have the right to step in, in order to complete, assign or sell the development.

3.  Foreign  Purchasers

If the purchaser is a foreign person, it is essential for the purchasers to have obtained Foreign Investment Board Review approval before the financier regards it as a qualifying sale.

4.  Sunset  Date

Financiers normally require a sunset date to be at least 6 months or longer after the anticipated completion date, depending on the development timetable. If the development period is longer, then the financier may require a longer extension period.

Sunset date exists because it takes into account possible delays in obtaining statutory approvals or delays beyond the developer’s control. The financiers may require extension in order to mitigate such risks.

5.  Minor  Variation

Financiers may require contract provisions that allow for minor variations (e.g. size, finishes, common property, unit entitlements, easements).

When seeking finance from lenders, there are a number of elements that need to be fulfilled throughout the project.

Contracts that do not satisfy the requirements of the financier can lead to failure to raise finance, incurring significant additional costs and project delays.

This process would generally require the assistance of an experienced legal team, ensuring that your project finance is facilitated throughout its life.

If you require assistance or legal advice on your development project, our team at Longton Legal can assist you.

 *Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*