The terms a solicitor expects in a private lending term sheet
A private lending term sheet that goes to a solicitor missing half these provisions comes back as a rewrite, not a markup. That costs a week and it costs credibility with the counterparty.
This is the baseline set a reviewing solicitor expects on a caveat or short-term secured facility. It is a checklist, not a precedent — drafting is a matter for your own lawyers.
The baseline provisions
- A stated maximum LVR, on a defined basis — for example 70% of sworn valuation. Not “up to”, and not against an undefined value.
- The borrower responsible for valuation costs, stated expressly.
- Default interest set at a defined margin above base — for example the contract rate plus 10% — rather than an unstated or discretionary rate.
- The facility limit defined as a capped percentage of security value less existing encumbrances. That last clause is what stops a limit expanding as prior debt is drawn.
- The facility expressly subject to formal loan documentation.
- A specified minimum earn — for example six months’ interest. This is the enforceable equivalent of a non-repayment clause, which is itself unenforceable.
- Clarity on legal costs and GST treatment.
- The letter of offer drafted so it does not bind the lender — only the party procuring the finance.
- Verification of existing debt from portal records and bank deposit-release letters, not merely current balances. A current balance on a facility with redraw available understates the encumbrance.
- The general security agreement entities specified by name.
- The loan purpose stated.
- A spouse guarantee where the guarantor’s assets are jointly held.
- Legal and valuation costs made non-refundable and pre-paid if the deal does not proceed.
- Governing law, matching the state of the security and the borrower.
Precision in the wording
Two categories of imprecision cause real disputes at execution.
Security description
“Caveat” and “unregistered second mortgage secured by caveat” are priced and documented differently by private lenders. Check the term sheet’s exact wording and fee basis against what was actually agreed verbally before it goes to the borrower. Imprecise terminology invites a dispute at signing, when nobody has time for one.
Similarly, where a draft describes security vaguely — “the borrower’s personal assets” as a catch-all — correct it to specify exactly which single asset is offered.
Ranking and repayment
State explicitly that repayment ranks behind other named secured creditors, and that senior mortgagees are repaid first regardless of how presales settle. And distinguish whether a deposit is genuinely upfront and unconditional, or contingent on full execution.
Vague wording in either place creates real dispute risk. On one restructure — a $550,000 personal loan replacing a preferred equity investment, with one property nominated as sole additional security and over half the lots presold on 10% deposits — each of these needed correcting before execution.
Conditional pricing language
Treat “from X%” in a written term sheet as a red flag and query it in writing before it reaches the client.
A rate quoted verbally at 14.5% has appeared in a written term sheet as “from 18%”, with a previously agreed broker fee omitted entirely. Ask three questions in writing: what changed, whether “from” means it can move again, and where the broker fee now sits.
Presentation
An unsigned offer or term sheet without proper letterhead or branding risks outright rejection by a counterparty’s professional advisers regardless of how good the commercial terms are. Always issue on formal letterhead — and have a funding fallback ready in case a mezzanine or bridging piece cannot complete on time.
What the documentation actually costs
Two figures worth budgeting rather than discovering:
- A full legal documentation suite on a syndicated or structured development facility: roughly $35,000 + GST — loan note subscription agreement, security trust deed, general security deed, mortgage, builder side deed, deed of priority or subordination, legal opinion, and registry searches — assuming no more than two draft rounds per document. Expect to fund 50% upfront to the facility agent’s solicitors before drafting starts, particularly under a tight close deadline.
- A single caveat-loan facility: legal cost estimates in the region of $6,600, against an example facility limit of $450,000.
One structural suggestion a lender’s solicitor may make, and which is reasonable to accept: collect the borrower’s agreed legal fee upfront and hold it in trust until settlement, applying it then, rather than invoicing only at settlement. It removes the risk of unpaid legal costs if the facility falls over.
One provision not to give away
Do not accept a security requirement being struck from a term sheet on a promise that it will “be worked through legally” later. Get clarity on what actually replaces it before execution.
Security is far harder to negotiate once the facility is in place, and the moment of maximum leverage is before the money moves.
General information only, prepared for wholesale investors and finance professionals. 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. Term sheets and security documents have significant legal consequences — obtain your own legal advice. Figures are indicative observations over 2024–2026.