It is not possible to foresee all of the twists and turns that may occur during a development project. Not only can the development requirements change during the project but, sometimes, it may become necessary to replace the contractor or members of the consultancy/design teams. Recent high-profile examples, such as the Carillion liquidation, have highlighted the need for development finance documentation to be flexible. The documents should allow a member of the development team to be replaced while protecting all parties and assisting with a successful completion of the development.

Development team appointments

Development finance documentation has a dual purpose: it must assist with completion of the development while also protecting the funder’s interests throughout the term of the project. It should specify the parameters for operating and completing the development, which will include the members of the team who will see the development through to completion.

The development team members are a key component of any development and their appointments are a fundamental part of any development financing transaction. If a key member of the team has to be replaced at any time, this can have important implications and will need to be discussed with and approved by the funder. The development finance documentation needs to be flexible to allow for this and so avoid unnecessary delays.

Key considerations

The main issues to be considered at the outset by the parties to the development finance documentation should be:

  1. What procedures could be put in place on the financing side to allow the development to proceed as smoothly and quickly as possible if a development party needs to be replaced, while at all times adequately protecting the interests of all parties?

  2. Which key members of the construction team, if replaced, would need prior approval from the funder?

  3. How long will the process take, both to terminate the appointment of the original development party and to appoint a replacement? This will obviously depend on a variety of factors including the importance of the development party’s role and the project itself as well as the basic contractual obligations which any replacement party will be required to sign up to.

Conclusion

In any such scenario, it is important for a borrower to ensure that it will be given sufficient time to agree reasonable commercial terms with a replacement development party while a funder will be keen to ensure that the project can be completed within the previously agreed timeframe. Because the borrower will need to obtain the lender’s consent to any new appointment, and agreement on the terms of the appointment will need to be reached between a number of parties, it is important that a good process is in place to streamline and advance the communications between all of these parties, to avoid unnecessary delays.