Legal Practice Notes

Types of security Under Scots law, the range of security interests is narrower than those available in English law. The form of protection depends on the particular class of asset being charged. This Practice Note reviews the securities obtainable over particular asset types before addressing the floating charge, a form of security that may be created by Scottish companies or limited liability partnerships. Fixed security Land and buildings The recognised fixed security over real estate assets in Scotland, available to both individuals and companies, is the standard security. A standard security may be granted over an interest in land that is recorded or registered in the General Register of Sasines or the Land Register of Scotland. Note the General Register of Sasines ceased to accept, among other matters, recording of new standard securities from 1 April 2016. From that day, a borrower granting security over a...

Should a borrower enter insolvency, the lender might be required to divide the borrower’s available assets with fellow creditors and, consequently, recover only a portion of the sums due. Lenders commonly take security to guard against this exposure and improve the chances of repayment. When security is in place, the lender acquires an interest over the security provider’s asset(s), offering comfort that, if the borrower becomes insolvent, amounts can be recovered. As an alternative (or as well), a lender may obtain a third-party guarantee in respect of the borrower’s obligations. If the borrower does not repay, the lender can demand payment from the guarantor. This further raises the prospect of repayment, especially where the guarantor has strong credit or holds influence or control over the borrower (for instance, where it is the borrower’s parent). Not every loan facility is secured. Both...

This Practice Note assesses the documents needed for a residential mortgage backed securities ( RMBS) transaction from pricing to closing, naming the key parties to each and the principal points to weigh... The key documents are: offering document subscription agreement/note purchase agreement agreed upon procedures letter trust deed deed of charge paying agency agreement mortgage sale agreement mortgage administration agreement standby mortgage administration agreement cash management agreement liquidity facility agreement master definitions schedule corporate services agreement bank account agreement swap documents legal opinions risk retention memorandum Volcker memorandum risk retention letter reporting designation letter Each will be addressed in turn below... Signing date The documents below are settled and executed before the RMBS is announced and...

Where a facility is committed (eg term loans and revolving facilities) For committed arrangements, the facility agreement will spell out precisely when and how the sums must be repaid. These agreements will usually also indicate: whether the borrower is permitted to repay before the scheduled repayment date(s) (ie make a voluntary prepayment), together with any conditions for such prepayments, including minimum amounts or any fees payable; and whether there are circumstances that oblige the borrower to repay all or part of the facility early (ie make a mandatory prepayment). Uncommitted facilities, such as overdrafts, will typically include a straightforward term stating the facility is repayable by the borrower on the lender’s demand. As there is no fixed repayment date, the borrower is generally free to repay whenever it wishes......

Mitigation applies to all damages claims The notion that a claimant should mitigate their loss applies to every civil claim for damages, whether brought in contract, tort, or other recognised circumstances, although much of the case law on mitigation has arisen from contractual disputes. Consequently, even once causation and remoteness are established—subjects covered in practice notes on contractual breach, and on tort and negligence—the amount recoverable may still be affected if the claimant has not mitigated their loss. In essence, the innocent party cannot obtain damages for loss they could have avoided but did not, whether through unreasonable conduct or by failing to act. The key issue in mitigation is which steps it was reasonable, and which it was not, for the claimant to take. This is often referred to as the duty to mitigate or the rule on...

This Practice Note explores the doctrine of mistake in contract law. It surveys common, mutual and unilateral mistake, errors as to identity, and mistake regarding the signed document (non est factum). It also considers the effect of each type on the contract and how mistakes can be addressed by rectification or by construction. For guidance on dealing with errors in the execution of documents, see Practice Note: Deeds— Failure to comply with formalities and other defects and our Execution collection, in particular, The Basics— Q& As— Mistakes in executing documents. For further help where parties choose to fix a mistake by agreeing an amendment to the operative parts of a contract, see Practice Note: Contract variation. What is a mistake? A mistake is a wrong belief held by one or both parties at the point of contract formation. A mistake may relate to the: subject matter or the...

Lenders commonly take security to support a borrower’s duties under a loan. Granting security gives them specified rights over the secured assets if the borrower does not repay. Under English law, four forms of security interest are recognised: mortgages charges pledges liens For an overview of each, see Practice Note: Types of security; for mortgages, see Practice Note: Mortgages; for charges, see Practice Note: Fixed and floating charges; and for pledges, see Practice Note: Pledges. This Practice Note covers: the distinction between legal and equitable security interests which security types can be legal and which can be equitable (or both) the principal advantages of legal security the principal advantages of equitable security Legal or equitable security? The security interest granted to the secured party will be legal or equitable. Certain forms of security can assume either character; some are always legal while...

Roles and responsibilities within a financial institution This Practice Note outlines the principal roles within a financial institution, the responsibilities linked to each, and how and when an in-house lawyer may engage with them. Financial institutions include investment banks, retail banks, private wealth banks, or other investment arms—including asset managers or funds. It is primarily aimed at in-house banking and finance lawyers working at investment banks. Front office The front office is the client-facing arm of a bank that generates revenue. Typical activities undertaken by front-office professionals include: pitching fresh trading strategies and concepts to investors assisting clients in addressing their financing challenges creating and/or distributing investment products trading in secondary market instruments arranging debt issuance through the debt capital markets providing commercial lending, and producing research reports Within an investment bank, sales and trading work in close...

This guide explains the use of e-signatures across a range of international jurisdictions. A comprehensive table provides a quick-reference overview of whether, and in what ways, e-signatures are deployed in different countries. More extensive detail on every overseas jurisdiction listed is provided in the sections that follow. For detailed information on executing contracts in multiple jurisdictions, see Practice Note: Execution of contracts—jurisdictional guide. For guidance on the execution of deeds in different jurisdictions, see Practice Note: Execution of deeds—jurisdictional guide. For insight into how contracts are formed across various jurisdictions, see Practice Note: Contract formation—jurisdictional guide. For information concerning the execution of documents under Scots law, see Execution— Scotland—overview. Please note that this is an introductory resource only, and that local advice from suitably qualified legal professionals in the relevant country should be obtained where...

What is a power purchase agreement? A power purchase agreement ( PPA) is a contract between an electricity producer (generator) and the buyer of that electricity (offtaker) that sets out the commercial terms governing the sale and purchase of power from a generation project. For our comprehensive suite of resources and precedents on power purchase, see: Power purchase agreements and routes to market—overview. A PPA offers a route to market for electricity produced by the generator and, for renewable generating stations, any green benefits the generator receives for producing electricity from renewable sources, which may be sold on to electricity suppliers. It is the agreement under which a significant share (if not all) of a project’s revenues are earned and, as a result, the PPA supports the economics of most power projects. Most PPAs include provisions addressing the following matters: ...

This Practice Note explains: the fundamental nature of conditions precedent the different categories of conditions precedent (ie documentary or factual) the matters to consider when deciding if the conditions precedent have been met the consequences and next steps where the conditions precedent are not fulfilled This Practice Note reviews the typical conditions precedent in a finance transaction at the stage of: first drawdown under the facility, and future drawdowns throughout the life of the facility Where appropriate and relevant, this Practice Note signposts provisions in Precedent: Facility agreement (term loan): single company borrower—bilateral—with or without security or a guarantee and the Loan Market Association ( LMA) investment grade multicurrency term facility agreement (the LMA facility agreement) (available to LMA members on the LMA website). The LMA offers a series of helpful user guides for its members in the...

In a standard real estate finance deal, lenders largely depend on rental income from the property to service the loan. In development finance, lenders also want comfort that the borrower has adequate cash to fund the build. Accordingly, real estate finance lenders enforce tight limits on how the borrower deploys its cash in both investment and development financings. This Practice Note considers the key clauses that create these limits in real estate finance facility agreements... Where to start with drafting the bank account provisions in a real estate finance transaction The range of bank accounts required, and the restrictions on how each account may operate for a particular deal, are usually settled at term sheet stage before drafting the facility agreement. The Loan Market Association ( LMA) has issued real estate finance term sheets that include bank account provisions. See Practice Note: Real estate...

This Practice Note considers some of the defences to a claim for restitution for unjust enrichment This note reviews selected defences to restitutionary claims grounded in unjust enrichment. It should be read alongside Practice Note: Unjust enrichment—elements of the claim, which outlines the legal background and the core criteria for making out such a claim. As that Practice Note makes clear, the material here is intended to give only a high-level grasp of a notably intricate branch of jurisprudence, offering outline guidance rather than detailed analysis. When confronted with an allegation seeking restitution for unjust enrichment, several defences may arise. In broad terms, they apply in circumstances where restoring the claimant to the pre-enrichment position cannot be achieved, or where ordering such restoration would itself be inequitable. Accordingly, several potential responses warrant consideration whenever such a claim is pursued......

This Practice Note discusses: the aim and customary representations found in a leveraged senior facilities agreement ( SFA), and how they vary from those in an investment‑grade facility agreement typical sponsor approaches to narrowing the scope of those representations the usual timing for delivering representations the function of, and standard information undertakings in, a leveraged SFA the role of, and common general undertakings within, a leveraged SFA how ‘baskets’ are used to moderate the effect of the general undertakings the rationale for, and usual events of default The material here proceeds on the basis of an SFA broadly aligned with the senior multicurrency term and revolving facilities agreement for leveraged acquisition finance transactions available to members on the LMA website ( LMA Leveraged SFA). For details on other components of a leveraged finance facilities...

Key issues in operation and maintenance ( O& M) contracts for renewable energy projects Overview Operation and maintenance ( O& M) of renewable energy projects is an essential element in delivering a project that succeeds. While capital expenditure often represents the majority of spend, O& M still meaningfully shapes the levelised cost of electricity, a cornerstone of project economics. A robust O& M approach can sharpen competitiveness and strengthen the investment case for renewable energy projects. The nature of O& M services differs across technologies; for instance, photovoltaic ( PV) solar involves a scope, risk profile and practical considerations that are distinct from offshore wind. Contractual terms also vary by jurisdiction and according to the maturity and depth of the relevant services market. As more renewable assets reach operation and scale up, the O& M sector grows in size and...

What is prepayment finance? Prepayment finance, a form of commodities finance, describes arrangements where buyers fund commodity producers by paying ahead of delivery. This well-established model channels funding directly to buyers or traders of goods and commodities, and indirectly to producers and exporters. Under this structure, a buyer—often called the offtaker—makes an advance to the producer or exporter, with that prepayment backed by a separate loan provided to the offtaker by a lender, typically a bank or a syndicate of banks. Such structures are advantageous to: producers, as they can obtain credit that would otherwise be unavailable through the conventional banking system; and buyers, as the financing enables them to secure long-term supply agreements with producers in return for providing funds. They are especially valuable where the producer operates in jurisdictions with exchange control regulations or tax regimes that prohibit or penalise direct lending to...

An early warning of financial difficulty is commonly a breach of covenants by the business. Lenders may consent to a straightforward waiver to remedy a short-term dip in performance, or it may indicate the prospect of a broader restructuring. It is vital to review how frequently covenants are tested and, if the company is unlikely to meet the next test, seeking a covenant waiver could be sensible. Options A covenant waiver or reset is a milder step than the following options: equity injection (in exchange, the equity provider typically requests a covenant holiday or a relaxation of covenants) (see Practice Note: New money and equity injections in a restructuring situation) sale of non-core assets refinancing by new lenders debt restructuring (see Practice Note: Debt waivers, extending maturity and debt rescheduling) debt for equity swap (see Practice Note: Debt for equity...

This How to guide sets the groundwork for drafting and negotiating a security document. It links to helpful precedents and highlights key drafting and negotiation points. Practice Note: Introductory guide to security in a lending transaction gives a fuller overview of taking and perfecting security, covering types of security, perfection and priority. Practice Note: Debenture drafting and negotiation guide provides detailed guidance on drafting and negotiating a debenture. Parties The parties to a security document in a bilateral transaction will be: the security provider(s)—eg the borrower(s) under the facility agreement or a third party, such as group company guarantors or a parent company, or both; and the lender The parties to a security document in a syndicated transaction will be: the security provider(s)—the borrower(s) under the facility agreement or a third party, such as the group company guarantors or a parent company, or both; and the...

Practice Note This Practice Note serves as a primer on facility agreements (loan agreements) for readers starting out in lending. It outlines the typical elements of a bilateral, committed facility agreement for a corporate borrower and signposts further reading. For a fuller introductory overview of lending transactions, see Practice Note: Introductory guide to lending, and for starter material on drafting and negotiating a facility agreement, see Practice Notes: Negotiation guide—facility agreement, How to draft and negotiate a facility agreement and Drafting techniques and contract language. Where relevant, it flags provisions in Precedent: Facility agreement (term loan): single company borrower—bilateral—with or without security or a guarantee and in the Loan Market Association ( LMA ) investment grade multicurrency and revolving term facilities agreement with/without observation shift (the LMA facility agreement) (available to LMA members on the LMA website). Remember, LMA facilities agreements are intended for...

Cape Town Convention The Convention on International Interests in Mobile Equipment (the Convention), alongside the related Protocol to the Convention on Matters Specific to Aircraft Equipment (the Protocol), together more widely known as the Cape Town Convention, entered into effect on 1 March 2006. This Cape Town Convention sets out a harmonised body of rules that govern the creation, safeguarding, ordering and enforcement of specified rights relating to aircraft and aircraft engines. A central feature is the establishment of the International Registry for aircraft objects, through which certain classes of interest can be registered, including the recording of a security interest in an aircraft. It also affords protection to creditors in circumstances of default or where insolvency may then arise......