Deed of priority from the mezzanine lender's seat
From the borrower’s side, a deed of priority is a delay. From the junior lender’s side, it is the document that determines whether the position is genuinely secured or merely nominally so.
The negotiation follows a predictable arc, and knowing where it usually lands saves both time and a poor outcome.
The opening position
A senior lender’s first draft typically tries to fully subordinate the second mortgagee — blocking it from:
- receiving any payments, including interest;
- enforcing its security; and
- even treating its debt as due and payable
…until the senior facility is repaid and satisfied in full.
Read literally, that is not a subordinated secured position. It is an unsecured, non-accruing, unenforceable claim that happens to be registered on title. Push to have it removed or materially narrowed.
The usual compromise: a standstill
Where the senior lender will not drop subordination outright, the fallback is a standstill clause — a fixed period after default during which only the senior lender may act, after which the second mortgagee can pursue recovery.
On one construction deal the senior opened at 90 days, the mezzanine wanted 30, and it settled at 60. That is a fair reference range to plan around.
The standstill is a real concession from the junior side, but it is a bounded one. Full subordination is not.
The definition that quietly expands senior priority
This is the clause most worth reading twice.
Check whether the operative term is “Senior Debt” or “Senior Priority Limit” — because it determines whether the senior lender’s priority is capped at all.
Then scrutinise any definition of “Senior Priority Limit” for open-ended language: costs, charges and expenses of whatever nature… without limitation, incurred by the senior finance parties or a receiver.
That phrasing can silently expand the senior lender’s priority well beyond its stated facility principal — which is exactly the headroom the junior position was priced against. Push for it to be capped, or limited to enforcement-only costs.
What to expect from an institutional senior
Institutional first mortgagees generally dictate priority deed terms rather than negotiate them. Typical clauses:
- The junior debt subordinated entirely to the senior.
- The junior barred from receiving principal repayments without senior consent.
- The junior facility required to be fully drawn before the senior advances further funds.
- Payments otherwise due to the junior redirected to the senior until termination.
Budget the negotiation time accordingly, and flag the exposure to the junior lender or introducer early rather than presenting it as a formality.
One practical tip: when asking a bank’s external solicitor for a deed, request their own standard template rather than sending one drafted by the incoming lender. It cuts review cycles materially — one quoted turnaround was roughly seven days once bank-approved.
Structural points that decide the position’s quality
The deed is effectively mandatory
A deed of priority is a standard, essentially mandatory prerequisite for any registered second mortgage. Without one, a second mortgage is not achievable except at a very low LVR.
Critically: a statutory obligation on a first mortgagee to make title available for registration of a further mortgage is not the same as that mortgagee’s consent. Registering without a deed in place risks the borrower being treated as in default under the senior facility — which is a worse outcome for the junior lender than not registering at all.
Term alignment
The junior facility should mature no later than the senior. A junior maturing first creates a refinance event on one leg of the stack that neither party wants; a junior maturing well after leaves the position exposed to a senior enforcement it cannot control.
Extensions
An incoming senior financier will generally not accept a soft undertaking from a subordinate mortgagee being extended. Expect the extension’s interest to be required fully prepaid upfront as a settlement condition — an unfunded extension leaves the senior exposed to a silent default on the junior facility.
Conversely, a first mortgagee is under no obligation to restructure its own facility to suit a junior party’s preferences. It can proceed on terms already agreed with the borrower and let the junior react.
A limit increase is not just a senior negotiation
Where the senior’s limit rises mid-deal, the junior’s written consent should be obtained — and be prepared for part of the increase to be paid down to the junior to preserve its agreed LVR. On one development, a senior limit rose from $6.0m to $6.368m and roughly $90,000 of the increase was repaid to the second mortgagee specifically to hold their LVR at the agreed 80% cap.
Where the ring-fence beats the whole-security priority
On deals where repayment comes from a defined source rather than a sale of the whole asset, a more surgical structure works better.
Across a sequence of advances on one mixed-use project that had fallen into the possession of its first mortgagee, incoming junior lenders were repeatedly satisfied by the same toolkit rather than a fresh structure each time:
- A registered second mortgage plus an intercreditor deed giving the incoming lender priority over a specific, ring-fenced repayment source — trust-held commercial presale settlements — rather than over the whole security.
- A second-ranking general security agreement over the borrower.
- Irrevocable payment directions from the settlement solicitor.
- Consent from all parties noted on title.
Two useful corollaries: where existing caveats sit on title, they need less scrutiny if repayment is coming from ring-fenced presale proceeds rather than a whole-security sale. And unrelated debts owed to different parties with different interest treatment — an interest-bearing facility against a non-interest-bearing amount owed to a builder, for instance — should sit on separate loan agreements rather than being bundled.
Diligence before committing
Expect to dig hard, and expect these to be live issues: presale contract sunset-clause currency; any contract executed under a power of attorney; planning permit currency; and building permit and compliance status. Each of those has stopped a junior advance on a real file.
On multi-lender structures generally, the questions worth pushing back through an introducer are: what assets and ranking the intercreditor deed assigns to each lender; who the lead financier is; why each lender has its particular dollar limit; what LVR each is actually advancing to; and what the plan is once the interest reserve is exhausted, tested against a realistic settlement timeframe.
General information only, prepared for wholesale investors. It is not legal advice or financial product advice, does not take account of your objectives, financial situation or needs, and is not an offer of, or invitation to acquire, any financial product. Priority and intercreditor arrangements have significant legal consequences — obtain your own legal advice.