Covenants on short-term property facilities are mostly there to protect the lender from tail risk. Most of them are boilerplate. But three have real operational impact on your deal and should be negotiated actively during the heads of terms.
Covenant 1 — The sales trigger
The sales trigger is a minimum number of units sold (or aggregate sales value) by a specified month post-drawdown. Miss it and the facility can step up in rate, require a cash sweep, or in extreme cases default.
Typical market:
- Month 3: 15–25% of units by value sold subject to contract
- Month 6: 35–50%
- Month 9: 55–70%
- Month 12: 75–85%
What to push back on:
- Define "sold" properly. Subject to contract is fairer than completed. Missed completions are not your fault when they're buyer-driven.
- Exclude block sales. A single investor buying 5 units shouldn't count as 5 independent sales if your trigger is unit-count-based.
- Cure periods. A 30-day cure after a missed month gives you time to agree extension vs. default.
Lender-side underwriting always assumes the marketing burst will clear 40% of units in the first two months. If your unit mix doesn't support that — e.g. larger higher-priced units, specialist investor-only stock — negotiate the curve downward before accepting.
Covenant 2 — The extension right
What happens if sales are running behind and the facility term is about to expire. The extension right defines whether you can extend, at what rate, with what fees.
Typical market:
- 3-month extensions, by notice to the lender
- Rate step-up of 0.10–0.20% pm during extension
- Extension fee of 0.25–0.5% of outstanding balance
- Total extendable period: 6 months (so if base term is 12, absolute max is 18)
What to push back on:
- Automatic vs. discretionary extension. Discretionary means the lender can refuse. Automatic (subject to conditions like LTV staying within range) is much safer.
- Step-up size. 0.10% pm is reasonable. 0.25%+ pm is aggressive — push back.
- Multiple extensions. If one 3-month extension is fine, two shouldn't be a new negotiation.
Covenant 3 — The minimum release
The minimum release price is the per-unit net sale value below which the lender doesn't have to release its charge. It's designed to stop fire-sale pricing during a slow market.
Typical market:
- Set at 90–95% of the valuer's day-one value per unit
- Applied per unit, not portfolio-wide
- Lender can waive case-by-case
What to push back on:
- Portfolio average vs. per-unit. Push for an average. This lets a low-priced unit be balanced by a high-priced one.
- Waiver process. Make sure it's defined — not "at lender's absolute discretion" but "subject to LTV staying below X%".
- Excluded affordable. If you have a mandatory affordable-housing element, explicitly exclude those units from the minimum release.
The boilerplate covenants you don't need to sweat
Most of the rest of the covenant package is standard and rarely triggers. Insurance, planning compliance, CIL/S106 payments, warranty in place, NHBC/LABC sign-off, monthly reporting — all standard, all fair, all should be accepted without much fuss.
One last thing about personal guarantees
Most UK dev exit facilities for limited-company borrowers include a personal guarantee from directors/shareholders, capped at somewhere between 15% and 25% of facility. This is market and usually not negotiable below 15%. What IS negotiable:
- Cap the PG at a fixed £ amount, not a floating percentage
- Carve out the PG above a certain LTV threshold (e.g. PG released if LTV drops below 50% via sales)
- Several rather than joint-and-several PGs across multiple guarantors