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F E Smith
F E Smith, Advocate
Category: Law
Satisfied Customers: 10227
Experience:  I have been practising for 30 years.
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Please explain this para below, and my question is does this

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Please explain this para below, and my question is does this allow the company or directors of the company to obtain loans from other lenders that will result in not securing money for the build of the villa in Portugal. The para below is an extract from a contract under English law.the Land to be acquired by [QDP1] will be provided as security for a further facility to be put in place to provide the bulk of the development finance for the construction of a villa on the Land and that the security provided to the Lender under the terms of this Facility may be subordinated (at the appropriate time) to any security required by any third party bank or finance provider".

I will word this slightly differently in clear English. Read the two together and you will see what it means.

The land is being provided as security for the finance (further facility) to build a villa on the land.

The security on the land may be subordinated (rank behind) another third party bank or finance provider.

That means that the security for the finance for the Villa may rank behind another bank or finance provider, which would not be problematical provided whoever has the security on the land agrees for their security to rank behind the other providers and provided the any further finance is going to be used for the Villa BUT what it doesn’t say is that further finance is used for the Villa.

It does say that the security in place to provide the bulk of the development finance and anyone reading between the lines would say that the subordination to the other bank or finance provider be to provide the balance of finance but it doesn’t say that.

I think what’s intended to happen here, but it doesn’t say that, is that there is security on the land in favour of someone (I don’t know who) to provide the bulk of the finance for building the and the balance of the finance to build the Villa is coming from somewhere else and that somewhere else may also want security on the land. Because they will also or may want security on the land to provide the balance of the finance for the Villa, whoever has the first security have to (subordinate) let the other financiers go first.

Where the document is flawed is that there is no obligation or reference to any money being provided by the third party bank or finance provider, being used to fund the Villa. If that’s your concern, then you have right to be concerned. If this has not already been signed, it needs changing.

Can I clarify anything for you?

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Best wishes.


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