Intercreditor Deeds in Mezzanine Finance: Senior Consent, Priority and Control
Mezzanine finance documentation
Intercreditor Deeds in Mezzanine Finance: Senior Consent, Priority and Control
An intercreditor deed sets the rules between the senior lender and mezzanine lender when both are exposed to the same project. It is not a formality: it determines payment priority, information rights, cure periods and what each lender can do if the project falls behind.
The practical answer
01
Why senior consent matters
A senior facility commonly restricts additional debt, security, distributions and changes to the project structure. A mezzanine loan that ignores those restrictions may create a default before funds are advanced.
The first step is to review the senior term sheet and facility documents, then obtain written consent on terms acceptable to both lenders.
Debt permission
The senior lender confirms that the mezzanine debt may exist within agreed limits.
Security permission
The parties define what second-ranking or alternative security the mezzanine lender may hold.
Payment permission
The deed states when interest, fees and principal can be paid to the mezzanine lender.
Enforcement coordination
Notice, standstill and control provisions reduce the risk of conflicting action.
02
The provisions that shape practical control
Commercial terms in the mezzanine offer can change once the senior lender sets its intercreditor requirements. The project team should assess the package as a whole.
| Provision | What it regulates | Developer impact |
|---|---|---|
| Priority | Order of claims and proceeds | Senior debt is generally repaid before subordinated debt. |
| Payment blockage | When mezzanine payments must stop | Cash flow to the mezzanine lender may pause after a senior default. |
| Notice and cure | Who is told about a default and who may remedy it | Cure periods can preserve the project but may add cost. |
| Standstill | How long the mezzanine lender must wait before enforcement | The junior lender may have limited immediate remedies. |
| Step-in or purchase rights | Whether the junior lender can cure, refinance or acquire senior debt | These rights can influence rescue options and control. |
| Release mechanics | How security is released on sale or enforcement | Poorly aligned releases can delay settlements or refinance. |
03
A better negotiation sequence
Intercreditor negotiation is usually smoother when the lenders receive the same current project information and the proposed capital stack is clear from the start.
Sequence the approvals
- Confirm the senior lender’s policy on subordinated debt before accepting a mezzanine offer.
- Provide the senior facility, security schedule and any deed of priority already in place.
- Agree the intended mezzanine amount, draw timing, interest treatment and repayment source.
- Identify shared collateral, guarantees, project accounts and control rights.
- Circulate a term-level priority summary before lawyers begin full drafting.
- Allow time for credit approval and legal negotiation on both sides.
04
Default scenarios to model before signing
The deed matters most when the base case fails. Developers should understand how it works if a cost overrun, missed milestone, valuation decline or delayed exit triggers a default.
Senior default only
Can mezzanine payments continue, and does the junior lender have a cure right?
Mezzanine default only
Must the junior lender notify the senior lender before exercising rights?
Both facilities in default
Which lender controls enforcement, sale strategy and project accounts?
Refinance or asset sale
What consents and release documents are needed to complete on time?
Questions for the legal review
- Who receives default notices and how quickly?
- What costs accrue during any standstill?
- Can the mezzanine lender fund completion or cure senior arrears?
- How are enforcement proceeds and professional costs allocated?
- Do guarantors receive independent advice on the combined exposure?
05
Developer checklist before documents are final
A clear commercial schedule helps the borrower, brokers, lawyers and both lenders confirm that the documents reflect the intended deal.
Prepare one coordinated pack
- Current senior term sheet and full facility documents
- Senior payout or current balance, undrawn amount and maturity
- Proposed mezzanine term sheet and repayment profile
- Capital stack showing all debt, equity and retained interest
- Security, guarantees and project entity structure
- Drawdown account and cash-control arrangements
- Default notice, cure, standstill and enforcement summary
- Exit steps, release conditions and required settlement timing
Sources
References and related Zip Funding guides
This article is general information. Intercreditor deeds and priority arrangements are transaction-specific and require independent legal advice.
Continue the cluster
- Zip Funding — mezzanine finance flagship guide.
- Zip Funding — step-by-step mezzanine finance process for property developers.
- Zip Funding — mezzanine finance costs and blended project cost.
Continue the mezzanine finance series
Related guides for the next decision
Mezzanine finance costs in Australia
Model interest, fees, net funds, peak debt and total dollar cost.
Mezzanine due diligence checklist
Prepare the capital stack, project evidence, security and exit documents.
Step-by-step mezzanine finance process
Follow the transaction from initial review through due diligence and settlement.
Frequently asked questions
Intercreditor deed FAQs
Is an intercreditor deed always required?
Not in every structure, but it is common where senior and mezzanine lenders have overlapping security, cash-flow or enforcement interests. The senior lender’s documents and credit policy are decisive.
Who normally drafts the intercreditor deed?
The senior lender or its lawyers often provides the first draft, although practice varies. Each party should have its own legal advice.
Can a mezzanine lender enforce immediately after default?
Often not. Notice and standstill provisions may limit action for a defined period and give the senior lender control or cure opportunities.
When should senior consent be requested?
As early as possible—ideally before the mezzanine structure is treated as committed—because consent terms can affect pricing, security, timing and viability.
A clearer funding review
Bring the senior facility and proposed mezzanine layer into one coordinated review.
Zip Funding can review the senior facility, developer contribution, verified project costs, proposed mezzanine layer and exit as one capital stack. Any structure remains subject to lender appetite, valuation, due diligence, legal documentation and approval.
General information only. This article is educational and does not constitute financial, legal, tax or credit advice. Mezzanine finance can involve subordinated security, higher costs, restrictive covenants, enforcement risk and loss of developer equity. Terms, leverage, security and timing vary. Obtain independent professional advice appropriate to the transaction.
