An explainer from Watson AM, Basel
A conditions precedent list is the set of items a borrower must satisfy before a lender releases any funds: clean title, registered security, signed guarantees, insurance in force, and the corporate approvals behind them. Lawyers call them CPs. It's the least visible part of a loan and the part that does the most to protect the money once it moves.
The idea is old and the drafting is standard. The Loan Market Association's real-estate finance facility agreement, the template most European property loans are built from, structures the whole first drawdown around a conditions precedent schedule, and a borrower's guide to that document treats satisfying the CPs as the gate to funding. What follows is what typically sits on that schedule for a European property loan, and how to read it.
What sits on a conditions precedent list
A CP list groups into a few families, and most property loans carry a version of each.
Title and property. Evidence that the borrower owns, or is completing the purchase of, the asset the loan is secured against, with the land registry entry to prove it and no undisclosed prior charges sitting ahead of the lender.
Security. The mortgage or charge, executed and ready to register, plus any pledges over shares or accounts and any guarantees the structure calls for. On a first-rank facility this is the item that has to rank ahead of everyone else, so its registration is the hinge the whole file turns on.
The borrower's authority. The corporate resolutions, signatures, and powers that show the people signing can bind the company, and that the loan is properly approved inside it.
Insurance and the asset's condition. Cover in force on the property, with the lender noted where the structure requires it, plus valuations, and on a development, the building contract and the professional team behind it.
Compliance. The know-your-customer and anti-money-laundering checks on the borrower and its owners, cleared against the relevant standards before money moves.
What it protects, and where it fails
The CP list protects capital by making disbursement conditional. Until the security is registered and the title is clean, the lender, and the investors whose money the lender deploys, are not yet exposed. The list is the mechanism that keeps the exposure from starting a day before the protection does.
Where it fails is rarely the list itself. It's how the list is handled. A CP agreed late, once the borrower is committed and the clock is running, invites pressure to fund before every item is clear. A CP verified loosely, an assurance accepted in place of the registered document, leaves a gap that only shows up if something goes wrong. And a list where several conditions are waived or pushed to conditions subsequent, delivered after drawdown, quietly moves protections from before the money moves to after it. A short list fully satisfied is stronger than a long one half-waived.
Where it sits in the file
In Watson AM's nine-step diligence, CP verification is stage three, after the initial assessment and the legal review, and before the financial and collateral work, the security package, and notarial registration. Putting it early is deliberate. The list is agreed up front, so what has to be true before close is written down before close rather than negotiated at the eleventh hour, when a borrower has the least room to push back.
That ordering is most of what lets a lender commit on a timeline a developer can plan around. When the framework is already built and the conditions are settled at the start, the work at funding is verification rather than discovery.
How this connects to Watson
Watson AM lends against European real estate on first-rank security, and the CP list is where a lot of that security is made real. Every facility funds only once the list is satisfied: the first-rank mortgage registered before disbursement, the personal guarantee signed, the title and authority confirmed. Publishing the diligence pipeline, including where the CP list sits in it, is part of how the firm explains what a borrower is agreeing to and what an investor's capital is standing behind.
None of this is unique to Watson. It's how disciplined secured lending is supposed to work. The difference a borrower notices is when the list is settled: at the start, so the terms hold, rather than at the end, when the window is closing. Borrower and investor material is available on request.
Common questions
What is a conditions precedent list?
A conditions precedent (CP) list is the set of items a borrower must satisfy before a lender releases any funds on a loan: clean title, registered security, signed guarantees, insurance in force, and the corporate approvals behind them. Until every item is met, nothing is disbursed.
What is the difference between conditions precedent and conditions subsequent?
Conditions precedent must be satisfied before money moves. Conditions subsequent are things the borrower agrees to deliver after drawdown, within an agreed window. A well-run file keeps the important protections as conditions precedent, in place before the lender is exposed, rather than promised for later.
Who checks that the conditions precedent are met?
The lender and its legal advisers verify each item against the underlying documents: the land registry entry, the executed security deeds, the insurance certificate, the corporate resolutions. Verification means checking the document itself rather than accepting an assurance that it exists.
Can a loan complete with conditions still open?
It can, if the lender waives or defers a condition, but each waiver moves a protection from before drawdown to after it, or removes it. A CP list with many waived or deferred items is weaker than a shorter list that was fully satisfied before funds moved.
Watson AM, Basel. This article is general market commentary for professional and qualified investors and for real-estate developers. It isn't investment, legal, or tax advice, or an offer of any financial product.
Sources
- Loan Market Association, Real Estate Finance Facility Agreement (the market-standard European property-loan document that structures first drawdown around a conditions precedent schedule).
- Jones Day, "The Loan Market Association's Real Estate Finance Facility Agreement: A Borrower's Guide," 2012.
- Fieldfisher, "The LMA Real Estate Finance Facility Agreement," practice commentary.