Construction Loan Agreement for Nigeria

Construction Loan Agreement Template for Nigeria

A comprehensive legal agreement governed by Nigerian law that establishes the terms and conditions under which a financial institution provides funding for construction projects. The document incorporates specific requirements of Nigerian banking regulations, land law, and construction industry standards, while detailing the loan facility, drawdown conditions, security arrangements, and construction-specific obligations. It includes provisions for project monitoring, milestone-based disbursements, and compliance with local building codes and environmental regulations, all within the framework of Nigerian federal and state laws.

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What is a Construction Loan Agreement?

The Construction Loan Agreement is a specialized financing document used in Nigeria when a borrower requires funding specifically for construction projects. It combines elements of traditional loan agreements with construction-specific provisions, making it suitable for both commercial and residential developments. The agreement must comply with Nigerian banking regulations, particularly the Banks and Other Financial Institutions Act 2020, while also addressing requirements under Nigerian land law, building codes, and environmental regulations. This document is crucial for managing the unique risks associated with construction financing, including the phase-based nature of construction, the need for technical oversight, and the complexity of security arrangements. The agreement typically provides for milestone-based disbursements, construction monitoring requirements, and specific covenants related to the construction process.

What sections should be included in a Construction Loan Agreement?

1. Parties: Identification of the Lender, Borrower, and any Guarantors

2. Background: Context of the loan, including brief description of the construction project and purpose of the facility

3. Definitions and Interpretation: Definitions of key terms and interpretation rules for the agreement

4. The Facility: Details of the loan amount, purpose, and availability period

5. Conditions Precedent: Conditions that must be satisfied before loan disbursement, including construction-specific requirements

6. Drawdown Procedures: Process and requirements for drawing down the loan, including construction milestone-linked disbursements

7. Interest and Fees: Interest rate, calculation methods, and all applicable fees

8. Repayment Terms: Repayment schedule, methods, and prepayment provisions

9. Security: Details of all security arrangements, including property mortgage and other collateral

10. Construction Obligations: Borrower's obligations regarding construction timeline, standards, and approvals

11. Representations and Warranties: Standard and construction-specific representations and warranties

12. Covenants: Positive and negative covenants, including construction-related undertakings

13. Events of Default: Circumstances constituting default and consequences

14. Monitoring and Reporting: Requirements for progress reports and lender's inspection rights

15. General Provisions: Standard legal provisions including notices, amendments, and governing law

What sections are optional to include in a Construction Loan Agreement?

1. Insurance: Detailed insurance requirements if not covered in covenants - used for larger construction projects

2. Environmental Compliance: Specific environmental obligations - required for environmentally sensitive projects

3. Force Majeure: Force majeure provisions - important for longer-term construction projects

4. Step-In Rights: Lender's rights to take over project - used for larger commercial projects

5. Multiple Lenders: Syndication provisions - needed when multiple lenders are involved

6. Contractor Direct Agreement: Direct agreements with main contractors - used for larger projects

7. Foreign Currency Provisions: Required when loan is in foreign currency or involves international parties

What schedules should be included in a Construction Loan Agreement?

1. Schedule 1 - Property Description: Detailed description of the construction property and title documents

2. Schedule 2 - Construction Plans: Approved construction plans and specifications

3. Schedule 3 - Construction Timeline: Detailed construction schedule with milestones

4. Schedule 4 - Drawdown Schedule: Schedule of planned drawdowns linked to construction milestones

5. Schedule 5 - Form of Drawdown Notice: Template for drawdown requests

6. Schedule 6 - Required Permits: List of required construction and development permits

7. Schedule 7 - Security Documents: Forms of security documents and collateral details

8. Schedule 8 - Insurance Requirements: Detailed insurance requirements and minimum coverage

9. Appendix A - Conditions Precedent Documents: List of required documents for initial and subsequent drawdowns

10. Appendix B - Form of Progress Report: Template for construction progress reports

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Nigeria

Publisher

Genie AI

Document Type

Financing Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Banking & Finance

Real Estate

Construction

Infrastructure Development

Commercial Property

Residential Development

Industrial Development

Healthcare Facilities

Educational Institutions

Hospitality

Retail Development

Relevant Teams

Legal

Finance

Risk & Compliance

Project Management

Construction Management

Credit & Underwriting

Property Development

Technical Services

Commercial

Operations

Relevant Roles

Chief Financial Officer

Legal Counsel

Project Finance Manager

Construction Manager

Risk Manager

Credit Officer

Property Development Manager

Facility Manager

Commercial Director

Project Director

Compliance Officer

Technical Director

Finance Director

Construction Finance Specialist

Real Estate Manager

Industries
Banks and Other Financial Institutions Act (BOFIA) 2020: Regulates banking operations and financial institutions in Nigeria, including their lending activities and security requirements
Central Bank of Nigeria Act 2007: Provides framework for monetary policy and banking regulation, including interest rate guidelines and lending practices
Land Use Act 1978: Governs land ownership and registration in Nigeria, crucial for construction loans as they typically require land as collateral
Nigerian Contract Law: Based on common law principles, governs the formation and enforcement of contracts, including loan agreements
National Building Code 2006: Sets standards for construction practices and building requirements that may affect loan disbursement conditions
Environmental Impact Assessment Act 1992: Requires environmental impact assessment for major construction projects, which may be a condition for loan disbursement
Urban and Regional Planning Act 1992: Governs physical planning and development control, affecting construction permits and approvals
Money Laundering (Prevention and Prohibition) Act 2022: Regulates financial transactions and requires due diligence in significant financial dealings
Secured Transactions in Movable Assets Act 2017: Governs creation and perfection of security interests in movable assets, relevant for equipment financing aspects
Nigerian Investment Promotion Commission Act: Relevant if the construction project involves foreign investment or international lending
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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