Forward deals: exit certainty before ground-breaking

The difference that counts

In a forward purchase the buyer pays on completion and handover, in one amount; the developer funds the construction phase. In a forward funding the buyer pays against construction progress, usually in tranches. That relieves liquidity considerably and cuts financing cost.

The price is control. A buyer paying against progress wants a say on variations, contractor selection and material changes.

The clauses it hangs on

Completion date with liquidated damages, force majeure, definition of practical completion, treatment of snagging, rental guarantee on unlet space, and the delay threshold at which the buyer may walk. These six points consume ninety per cent of negotiation time.

The rental guarantee deserves particular care. Given too generously it shifts the entire letting risk to the developer, for years, often without the appraisal reflecting it.

• Cap liquidated damages
• Test the parent company completion guarantee, do not just accept it
• Tie milestones to objective, verifiable construction stages

Who it suits

Developers with limited equity who would rather give up margin than carry risk — and institutional buyers who get new-build quality at a return no longer available in the standing stock. It does not work where planning consent is still uncertain.