Intercreditor Agreements in Property Development
When more than one lender funds a scheme, one document decides who gets paid first and who has to wait. This is a plain-English guide to the intercreditor agreement: what it is, why every stacked deal needs one, and what a developer should look for before signing.
An intercreditor agreement is a legally binding contract between two or more lenders to the same borrower that sets out the ranking of their debt, the priority of payments between them, and the rights each lender has to enforce its security if the deal goes wrong. On a property development it is the document that lets a senior lender and a mezzanine funder lend into one scheme without their facilities colliding, by agreeing in advance who gets paid first and who has to stand back.
Any time a development is funded by more than one secured lender, an intercreditor agreement is doing the quiet work behind the capital stack. It is not glamorous and no developer reads it for pleasure, but it is the legal plumbing that makes layered funding possible. This guide explains what the agreement actually controls, how ranking and the priority of payments work, where standstill, enforcement, cure and buy-out rights fit, and how a developer's equity partner ranks behind all of it. We arrange stacked facilities for Hammersmith developers, so the perspective here is a broker's, not a solicitor's: you should always take specialist legal advice on the document itself.
What an intercreditor agreement is, and why stacked deals need one
Start with the problem it solves. A development lender takes a charge over the site as security. When a second lender comes in behind the first, both of them have a claim over the same asset, and both want to know exactly where they stand if sales are slow or the borrower defaults. The intercreditor agreement is the contract that answers those questions before anyone advances a penny. It ranks the senior lender's first charge ahead of the junior lender's second charge, and it converts two competing security interests into an orderly queue.
You will hear the same document called several things. Some solicitors call it a priority agreement or a deed of priority; others call it a subordination agreement; most people in banking and development shorten it to the ICA. A short deed of priority simply ranks two charges at the Land Registry, while a full intercreditor agreement adds the standstill, enforcement, cure and payment terms that govern how the two creditors behave over the life of the loan. On a typical senior and mezzanine development deal, one combined document usually does both jobs.
The agreement is only needed when there is genuinely more than one creditor to rank. A scheme funded entirely by a single senior facility does not need one. The moment you add mezzanine finance, a second-charge development loan, or any other junior debt, the senior lender will insist on an intercreditor agreement as a condition of drawdown, because it is the only thing that protects its first-charge position against a lender sitting behind it.
Ranking and the priority of payments
The heart of any intercreditor agreement is the payment waterfall. It fixes the order in which money leaving the scheme reaches each layer of the capital stack.
Senior debt
The first charge lender funds the largest slice of cost and is repaid first out of sales or refinance proceeds, including rolled-up interest and fees. Everything below sits behind this facility.
Mezzanine finance
A second charge junior lender tops up the senior facility. The intercreditor agreement subordinates this debt to the senior, so the mezzanine funder is only repaid once the senior lender is cleared.
Equity and preferred equity
The equity partner or preferred equity investor ranks last, and is structurally subordinated through the shareholders agreement rather than the intercreditor, taking profit share only after all debt is repaid.
The order is strict. Sale or refinance proceeds first clear the senior debt in full, including accrued interest, fees and any exit charge. Only once the senior lender is repaid does the mezzanine lender receive its principal, interest and any agreed profit share. The developer's own equity and profit come last. This is why junior debt is priced higher than senior debt: the junior creditor is further back in the queue and carries more risk if the gross development value slips or the scheme runs over budget.
The intercreditor agreement also controls what happens while the loans are still running, not just at exit. It sets out which payments the borrower is permitted to make to the junior lender before the senior debt is cleared, and which are blocked. In a development context, where interest usually rolls up rather than being serviced monthly, the practical effect is that the mezzanine lender agrees not to take money out of the transaction ahead of the senior lender except in the narrow circumstances the agreement allows.
Standstill and enforcement rights
Ranking decides who gets paid first in the good case. Standstill and enforcement decide what happens in the bad one. If the borrower defaults, the intercreditor agreement stops the junior lender from acting unilaterally. A standstill provision prevents the mezzanine lender from enforcing its security or accelerating its loan for a defined period, commonly ninety to one hundred and eighty days, giving the senior lender room to work with the developer on a resolution before anyone forces a sale.
During that standstill the senior lender controls enforcement. It decides whether to appoint a receiver, whether to fund the scheme through to practical completion, or whether to sell the site. The junior lender has to hold its position and wait, because a fire sale triggered by the mezzanine funder mid-build would almost always destroy value for everyone, including the senior lender whose recovery depends on the finished units. The agreement also sets out how any enforcement proceeds are shared, which simply mirrors the payment waterfall: senior first, junior second.
For a developer this matters more than it first appears. A well-drafted standstill can be the difference between an orderly workout that finishes the building and a disorderly enforcement that crystallises a loss. It is one of the clauses to understand properly before you sign, and the point at which specialist legal advice earns its fee.
Cure rights, and what the senior lender will and will not allow
A cure right lets the junior lender step in and remedy a default on the senior facility, usually by making a missed payment or covering a cost overrun. It sounds technical, but the logic is simple: the mezzanine lender has money at stake and would rather cure a senior default than watch the senior lender enforce and wipe out the junior position. Cure rights give the junior creditor a chance to protect its investment and keep the project alive, which indirectly protects the developer too.
The other half of this section is the consent regime, the list of things the senior lender will and will not allow the mezzanine funder to do. A senior lender will typically require that the junior debt is capped, that the mezzanine lender takes no separate enforcement action, that it does not amend its own facility to increase the borrower's liabilities without consent, and that it receives no payments outside the permitted list. In return the intercreditor agreement gives the mezzanine lender defined information rights: sight of the quantity surveyor's reports, valuation updates and the monitoring surveyor's drawdown certificates, so that a lender ranked behind the senior debt is not flying blind.
These consent thresholds are where negotiation concentrates, and where a developer should pay attention. If the agreement requires both lenders to approve a change of contractor, a material variation, or a revised drawdown schedule, then every one of those decisions on site now needs two sign-offs rather than one. A sensible consent regime keeps the senior lender protected without turning routine project management into a committee exercise.
Buy-out rights
Many intercreditor agreements give the junior lender a buy-out right: the option to purchase the senior lender's debt at par, taking over the first-charge position rather than letting the senior lender enforce. It is the ultimate defensive move for a mezzanine funder. If a scheme is fundamentally sound but the senior lender has lost patience, the junior lender can pay off the senior debt, step into its shoes, and control the workout itself instead of being wiped out by an enforcement it does not agree with.
Buy-out rights rarely get exercised, but their presence changes the dynamic. They give the junior creditor a credible alternative to enforcement, which encourages both lenders to reach a sensible resolution rather than a destructive one. For the developer, a buy-out right in the hands of an aligned mezzanine partner is generally a good thing, because it keeps a motivated lender in the room who wants the building finished and sold rather than dumped.
Where equity ranks: subordinated by structure, not by the intercreditor
A common misunderstanding is that a joint venture equity partner is ranked by the intercreditor agreement in the same way as the mezzanine lender. It is not. The intercreditor agreement ranks debt against debt, senior against junior. Equity sits outside that document altogether. An equity partner or preferred equity investor is subordinated structurally, through the special purpose vehicle that holds the scheme and the shareholders agreement that governs it, rather than through the priority arrangement between the lenders.
In practice that means equity is repaid last by design. The special purpose vehicle can only distribute profit to its shareholders once the senior debt and any mezzanine debt have been cleared, so the equity partner is subordinated by where it sits in the corporate structure, not by a clause in the intercreditor agreement. Preferred equity adds a further wrinkle: it takes a fixed return ahead of ordinary equity but still behind all of the debt, which is why it behaves like the top layer of the stack. Understanding how mezzanine and equity layers rank behind senior debt is the single most useful thing a developer can take away from this guide, because it is what determines who actually sees a return when the scheme completes.
This is also why the two documents have to be read together. The intercreditor agreement ranks the lenders; the shareholders agreement ranks the equity. A developer raising both a mezzanine facility and development equity through a joint venture partner is signing up to a layered structure, and the interaction between the debt ranking and the equity waterfall is where the real economics of the deal live.
What a developer should actually care about
You will not draft the intercreditor agreement, and you are not the client for most of its clauses, the lenders are. But three things affect you directly.
Delay if the lenders cannot agree
The single biggest practical risk is programme slippage. Two sets of solicitors negotiating standstill periods, cure rights and consent thresholds can add two to four weeks to a completion, and longer if the lenders have not worked together before.
The cost of the negotiation
You usually pay both lenders’ legal fees. A tightly drafted intercreditor agreement between lenders who transact together regularly costs far less than a bespoke negotiation between two parties meeting for the first time.
The consent regime you are signing up to
The agreement dictates which decisions need both lenders’ sign-off, from a change of contractor to a variation in the build programme. A restrictive consent regime can slow every material decision on site, so read it before you sign.
The typical negotiation timeline for an intercreditor agreement on a development runs from a few days, where the senior and mezzanine lenders transact together regularly and use a familiar template, to several weeks where the parties are new to each other or the deal is large and bespoke. The best way to keep it short is to pair lenders who already have an established intercreditor position, which is one of the reasons a developer benefits from a broker arranging both layers together rather than sourcing them separately.
None of this replaces proper legal advice. The intercreditor agreement is a legal document with real consequences if the deal turns, and a developer should always have a specialist finance solicitor review it before signing. Our role is to structure the capital stack so the agreement is straightforward to negotiate, and to keep the two lenders aligned so the document does not become the thing that delays your drawdown.
Intercreditor agreements in the Hammersmith market
Layered funding is common in Hammersmith and Fulham because the numbers are large enough to justify it. High values mean high total costs, and high total costs are where senior debt alone often does not stretch far enough.
Average value
£850 psf
Typical residential values across Hammersmith and Fulham, high enough that total scheme costs frequently push developers into senior plus mezzanine structures that need an intercreditor agreement.
Planning approval rate
74%
Most residential applications in the borough are approved, supporting the fundable gross development values that make layered debt and equity structures viable.
Average build timeline
18 months
A realistic programme for a Hammersmith scheme. Interest rolls up across the full term on both facilities, which is exactly the exposure the intercreditor waterfall governs.
Active development sites
38
A steady pipeline of live schemes across the borough, many of them using more than one lender and therefore sitting behind an intercreditor agreement.
From riverside apartment schemes in W6 to office-to-residential conversions around White City, the Hammersmith deals that reach for combined senior and mezzanine funding are precisely the ones that need a clean intercreditor position. If you want to see how a mezzanine facility sits behind the senior loan on your own numbers, or you would rather talk it through, our Hammersmith development finance team can structure the stack and keep the lenders aligned from term sheet to drawdown.
Intercreditor Agreement FAQs
The questions developers ask most about how lenders rank against each other.
An intercreditor agreement is used to rank two or more lenders that are funding the same borrower against each other, so that everyone knows who gets paid first, who can enforce their security and when, and what one lender is allowed to do without the other lender’s consent. On a development it is the document that lets a senior lender and a mezzanine funder lend into the same scheme without their two facilities colliding. Without it, a junior lender could enforce its charge or accelerate its loan at the worst possible moment and derail the whole project.
An intercreditor arrangement is the broader set of terms that governs the relationship between creditors of the same borrower, of which the signed intercreditor agreement is the written record. In practice the two phrases are used interchangeably. The arrangement covers ranking of debt, the priority of payments waterfall, standstill and enforcement rights, cure rights and consent regimes. On a property development it usually sits alongside a deed of priority that ranks the two security charges at the Land Registry.
An intercreditor agreement is also called a priority agreement, a deed of priority, a subordination agreement or, informally, an ICA. The labels are not perfectly interchangeable: a deed of priority tends to be a shorter document that simply ranks two charges, while a full intercreditor agreement adds standstill, enforcement, cure and payment provisions. On a straightforward senior and mezzanine development deal you may see a single combined document doing both jobs.
A co-lender is a party that lends alongside another lender, often on the same ranking through a single facility. An intercreditor agreement is the contract that sets out how two or more lenders, whether ranking equally or one behind the other, relate to each other. Co-lenders on one facility use an intercreditor or agency arrangement to agree voting, sharing and enforcement between themselves. In development finance the more common structure is a senior lender and a separately ranked junior or mezzanine lender, subordinated to the senior under the intercreditor agreement.
Data sources: HM Land Registry Price Paid Data 2025 (values); LBHF Planning Annual Monitoring Report 2024/25 (planning approval rate); Hammersmith Development Finance market data 2026 (build timeline and active sites). Figures are typical ranges for illustration and are not a quote or an offer of finance. This guide is general information, not legal advice.
Structuring a Stacked Deal in Hammersmith?
If your scheme needs senior and mezzanine funding, we will arrange both layers and keep the intercreditor agreement moving so it never holds up your drawdown.