Construction Lending: Negotiation and Documentation Issues

Construction Draws, Balancing, Retainage, Payment and Completion Guaranties, HVCRE ADC Equity Requirements

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, February 2, 2021

Recorded event now available

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Course Materials

This CLE course will provide lender's counsel with guidance in negotiating and documenting construction loans, including provisions for making loan advances, budgeting and loan balancing, payment and completion guaranties, pre-leasing requirements, retainage, and project completion. The panel will also discuss best due diligence practices and how construction loans can be documented to avoid HVCRE ADC classification.


Construction loans are inherently more fraught with risk than standard property loans. Additional risks include design defects by architects and engineers, inaccurate budgeting, unanticipated costs and delays, misapplication of construction draws, contractor liens, labor and contract disputes, force majeure, and the failure of contractors and subcontractors to complete the project on time and under the lender's approved plans and specifications. Lender's counsel must negotiate and document construction loans that address these risks.

The Covid-19 pandemic has had a devastating economic impact on construction loans, resulting in a marked increase in the filing of complaints to foreclose mechanic’s liens and stop notices and the need to convert properties from their original intended use to a more economically viable alternative. Construction loan documents must be drawn in anticipation of economic stress, the possible need to materially change the planned improvements and possible mechanic’s lien and stop notice litigation.

Construction loan documents should provide detailed conditions for making loan advances, budgeting and loan balancing, payment and completion guaranties, pre-leasing requirements, retainage of funds pending project completion, and more. Due diligence is essential to the construction loan process because plans and specs, budgets, and construction schedules will loom large in the construction loan agreement.

Payment and completion guaranties are critical components of a construction loan agreement. The borrower will heavily negotiate them regarding the limitation of liability, calculation of damages, and other matters. Lenders will also be concerned with the treatment of the construction loan as an HVCRE ADC asset. If possible, they will want to document that the borrower has met the equity funding requirements for exemption from HVCRE ADC treatment.

Listen as our authoritative panel examines forgoing issues as they relate to structuring and documentation of construction loans.



  1. Parties involved in a construction loan
  2. Construction loan risks
  3. Due diligence
  4. Construction loan documents
  5. Other crucial issues


The panel will review these and other critical issues:

  • What additional risks and concerns arise in construction lending as opposed to standard commercial property loans?
  • What are the contentious provisions in construction loan documents and the points of negotiation?
  • How do plans and specs, budgeting, and retainage figure into the loan funding process?
  • How do payment and completion guaranties address construction risks, and how do they vary?


Goldstein, Jason
Jason E. Goldstein

Shareholder, Co-Chair Mortgage Banking Group

Mr. Goldstein specializes in resolving complex business disputes for a diverse cross-section of clients, ranging from...  |  Read More

Hosack, John
John L. Hosack


Mr. Hosack focuses his transactional practice on commercial real property loan documentation, loan workouts, REO sales...  |  Read More

Rodriguez, Enrique
Enrique (Rick) Rodriguez, Jr.

Founder and Principal
Rodriguez & Associates

Mr. Rodriguez is a qualified expert in banking and real estate matters and for the past 17 years has provided a wide...  |  Read More

Weissmann, David
David A. Weissmann

Weissmann Zucker Euster Morochnik & Garber

Mr. Weissmann has represented real estate developers, managers and lenders in a variety of transactions and...  |  Read More

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