Transactions
Forward deals: exit certainty before ground is broken
Forward funding or forward purchase? The difference lies in the specific drafting — payment mechanics, cost risk, security and handover conditions.
A forward deal can address two issues at once: the developer secures the exit before construction, and the lender assesses realisation risk differently. In return the developer usually gives up part of the margin.
Forward purchase and forward funding are not standardised contract models. The specific drafting can differ in particular in relation to land acquisition, payment mechanics, construction cost risk, security, developer fee and handover conditions.
Note: the following provides a general overview of possible transaction structures and related questions. It does not constitute legal or tax advice. The specific legal and tax consequences should be reviewed for each transaction by the relevant professional advisers.
The economic difference
In a forward purchase the price typically falls due only after completion and acceptance; the developer largely pre-finances the construction phase. In a forward funding, payments are usually made against construction progress. That can ease the developer's liquidity and reduce financing costs.
The price for this is influence. A buyer paying against progress will usually negotiate control rights over variations, contractor selection and material changes.
Where negotiations get stuck
Completion dates and delay consequences, force majeure provisions, the definition of readiness for acceptance, treatment of snagging items, possible rental guarantees for unlet space, and the conditions under which the buyer may walk. These items take up most of the negotiating time in practice.
Rental guarantees deserve particular care. The further they reach, the more the letting risk shifts to the developer — sometimes over years, and often without the calculation fully reflecting it. The contractual drafting should be accompanied by the relevant legal, tax and, where applicable, technical advisers.
- Model delay and penalty provisions economically and reflect them in the calculation
- Have completion security reviewed on substance, not merely promised
- Tie milestones to objective, verifiable construction stages
Who this can work for
Developers with limited equity who want to trade margin for risk reduction, and institutional buyers seeking new-build quality with a defined handover date.
Forward structures are less suitable while planning consent is not secured. Buyers then regularly require withdrawal or adjustment rights, which in turn erode the developer's planning certainty.
In short
Forward funding can ease liquidity, forward purchase can preserve control. What matters is not the label but the specific contractual drafting.
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Legal and tax notice
The information on this website is provided for general information on real estate, financing and corporate transactions only. It does not constitute legal, tax or other individual professional advice and cannot replace case-specific advice from suitably qualified lawyers, tax advisers or other professionals.
The legal and tax consequences of a transaction depend in particular on its specific structure, the parties involved, existing contracts and the applicable legal and tax framework. Such questions should therefore be reviewed individually by the relevant professional advisers before any decision is taken.
Within the content presented on this website, Fox Capital does not provide legal or tax advice.