A Consent generally requires a contractor to affirm that the
construction contract is in effect, accurate, up-to-date, etc.
However, the contract is often not attached or identified in
When a copy is attached, it’s not always the most current version. In many cases, the contract may not yet have been negotiated and/or finalized by the owner/borrower and contractor;
therefore, the lender may only have the owner/borrower’s
It’s important to insist that the correct version be attached as
an exhibit so that the contractor and lender have the same
information, and the lender can’t later claim the contractor
agreed to something that wasn’t in its contract.
Frequently, the “final” contract can’t exist at the time the
lender requests the Consent because the owner/borrower and/
or contractor do not want to be obligated until they know there
is financing – a real Catch 22. This can only be worked out if the
contractor notices the mistake and notifies the lender.
The Borrower’s Assignment or Loan Agreement
as Part of the Consent
Even though contractors must agree that the Consents are
accurate (and will be adhered to), they are usually not involved
in lender-owner negotiations.
The loan agreements between the lender and the borrower will
contain many requirements (such as agreeing to keep a certain
amount of money in the bank, or not to pledge assets for other
loans). Consents often ask the contractor to agree to be bound
by the terms of the loan agreement, even though contractors
rarely see owner/borrower loan agreements.
There is a distinct difference between acknowledging awareness of and agreeing to be bound by the terms of a loan agreement, since a contractor can’t control a borrower’s actions.
Lenders will often remove these references or change the
wording if contractors request them to.
No Owner/Borrower Default
A lender almost always requires a contractor to agree that
there is no default on the part of the owner/borrower at the
time of the loan. If work on the project hasn’t started, this
probably isn’t an issue. But, if work has already begun, then
the contractor should verify with its field staff that no owner/
borrower defaults exist before signing. Otherwise, these
defaults could later be used against the contractor.
All Permits Have Been Issued
Is all necessary and required insurance in place? Does the
insurance name the lender as an additional insured? Some
of these events might not have occurred yet, but a Consent
often states that a contractor must agree that they have.
If this statement isn’t true, proceed with caution and/or
request that the language be stricken from the Consent.
Lender as Payee of Builder’s Risk
It’s fair to include the lender as a potential payee of insurance
proceeds, but it’s not appropriate for it to be the sole payee,
as required by some Consents. This type of language usually
needs a minor adjustment in order to make the lender one of
the loss-payees – to the extent of its interest in the damaged
property. Most lenders agree to this type of change once it’s
clearly explained by a contractor’s financial manager.
Acknowledgement that Work Has Not Started
In many states, a lender’s mortgage can take priority over a
contractor’s lien rights if the mortgage was on record before
work started. So, it’s important to a lender that a contractor
formally state it has not started work.
There are two issues here: First, if this statement isn’t true and
a subcontractor or vendor later files a lien, then the contractor
may later be forced to pay bills (regardless of whether it was
paid for the work) to remove the lien.
Second, if a contractor signs such an agreement, it gives up all
significant lien rights. Therefore, ensure that all upper management and legal counsel approve this clause before signing.
Hold All Funds as Trustee
It’s beneficial for a lender to see that all bills are paid and that
no liens exist. But, requiring a contractor to hold all funds
as a “Trustee” (via the Consent) can significantly change
legal relationships between the contractor and project vendors and subcontractors (such as taking away a contractor’s
right to withhold funds from one job to cover a default on
Be sure to fully understand the ramifications of becoming a
trustee and work with the project lender to ensure the language in the Consent is fair.
Make No Changes Without Lender Approval
A lender wouldn’t want a $1 million project to turn into a $2
million project because of change orders. However, “no changes
without lender approval” Consent language is not realistic in
the fast-paced world of construction.