- 26th April 2019
- Posted by: DMM
- Category: Development Finance
Using an SPV for Development Funding
If you are about to undertake a property development, then you will probably be using an SPV for development funding.
What is an SPV?
SPV stands for Special Purpose Vehicle and is a new limited company, registered with Companies House, and will be used exclusively for the property development project being funded. There is UK wide system of company registration and with a single register of companies. There are separate registrars in Scotland, Northern Ireland, and for England and Wales. It should be noted, however, that there are material differences in how the laws apply to its operation between the UK regions.
Most lenders (banks or private investors) will require the using of a brand new SPV for development funding as this vehicle will have no previous business history and so will not have any hidden liabilities. Furthermore, this new SPV will only then be used for the project being funded meaning that the lender does not have any threat from other business activities. So, using an SPV for development funding prevents any adverse risk being transferred to the lender and the assets being used as security. The SPV may, however, be a subsidiary to an established parent company thus also limiting the risk to the borrower.
The lender may take personal guarantees from all directors and beneficiaries of the SPV for development funding and may require monthly management accounts in order to monitor the use of their funds.
Usually, upon completion of the project, then the SPV will be struck off at Companies House as it will have done its job and the next SPV will be created for the next development funding.
It is always essential for a property developer to take legal advice before committing to using an SPV for funding and to fully understand the statutory requirements.
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