A cross default is a clause in a property development finance agreement that treats a default under another loan or financial obligation as a default under the current agreement. This allows a lender to act if the borrower has defaulted elsewhere, even if the present loan is performing. It’s a risk management tool ensuring lenders aren’t exposed to hidden financial stress across a borrower’s wider obligations. In UK property development finance, cross default provisions are particularly relevant in group structures or layered finance deals, where borrowers hold multiple facilities across different assets or entities.
In practice, cross default provisions are heavily negotiated within larger development structures where multiple facilities, joint venture arrangements, or phased funding lines exist across connected SPVs. A lender will typically monitor whether breaches elsewhere in the borrower group could impair project delivery, refinance capacity, or overall covenant compliance. This means a default under mezzanine debt, investment borrowing, or another development facility may trigger enforcement rights under the current loan before payment issues arise directly on the asset being funded. The clause is therefore closely linked to Event of Default analysis and is frequently encountered in more leveraged structures involving High LTV Development Finance, where lenders require greater visibility across wider borrower liabilities.
View glossary entry