Secured Real Estate Financing: Inter-Creditor Agreements - A Standstill With A Time Limit Is Not A True Standstill

When developing real property, sometimes it is necessary for a borrower to obtain funds from more than one lender. Where this happens, a priority structure likely will be created among the lenders participating in the transaction. Often times, on the insistence of the lender in top priority position (the "prior lender"), a 'priority' or 'subordination' agreement will be required from any "subordinate lender" who ranks behind the prior lender. 

The main provisions in this type of agreement are the following:

1. the subordination by the subordinate lender in favour of the prior lender of the subordinate lender's security interest in the property; and
2. the postponement by the subordinate lender in favour of the prior lender of its right to be repaid (i.e. the subordinate lender agrees that it cannot be repaid on its loan until the prior lender's loan is repaid).