When property transactions are funded through loans, lenders always seek strong security to protect their investment. One of the key instruments used in this context is a debenture. While common in corporate lending, debentures play a particularly important role in property finance, where they secure not just land and buildings, but the broader assets and income streams connected to the borrower company. 

What Is a Debenture? 

A debenture is a security document that grants a lender rights over a company’s assets. In property finance, this typically means that if the borrower defaults, the lender can enforce the security and may have the power to appoint an administrator or receiver to take control of the company and realise its assets – including property – to recover the debt. 

A debenture can include both fixed and floating charges. The fixed charge often attaches to specific assets such as land or certain accounts, while the floating charge covers the company’s general assets and can crystallise into a fixed charge if the borrower defaults or enters insolvency. 

What Does It Cover in Property Finance? 

In addition to securing land and property, a property finance debenture may also cover: 

  • Rental income and rent receivables 
  • Sale proceeds from completed units or developments 
  • Insurance policies and development warranties 
  • Shares in property-owning subsidiaries 
  • Bank accounts, goodwill, and intellectual property (such as brand names) 

Because of this wide reach, a debenture can effectively give the lender control over all aspects of the borrower’s company. 

Key Considerations for Borrowers 

Before granting a debenture, borrowers should consider how it interacts with existing or future financing. For example, there may already be mortgages or charges registered over particular properties, or restrictions in joint venture or lease arrangements that prevent the company from granting further security. 

Debentures also impose ongoing obligations on the borrower, such as maintaining adequate insurance or keeping the secured assets in good repair. Breaching these obligations can trigger the lender’s right to demand immediate repayment. It is therefore essential that directors review the terms carefully and ensure that they are commercially and operationally workable. 

Group Structures and Third Party Security 

In property groups, lenders may require security not just from the borrowing company but also from related group companies e.g. holding companies or sister SPVs. This is known as third party security. Directors of those companies must assess whether providing the security delivers a genuine corporate benefit and aligns with their statutory duties.  

 Conclusion 

In property finance, a debenture is far more than a piece of paperwork – it is a powerful tool that determines who controls key assets if things go wrong. Given the complexity of these arrangements, it is crucial that borrowers obtain specialist legal advice before signing, to ensure they fully understand the scope of the security and the implications for their business.