How a Builder's Side Deed Can Secretly Sabotage Your Project
- John Merlo
- Dec 5
- 14 min read
For any developer undertaking a significant construction project, securing finance is the first major hurdle. But once the loan is approved, a complex and often underestimated document lands on your desk: the Builder's Side Deed, also known as a Tripartite Deed or Financier's Deed. While presented as a standard requirement for project finance, this agreement contains clauses that can create immense construction risk.
Hidden within the legal jargon is a provision—the "Extended Cure Period"—that can inadvertently push your builder towards insolvency, jeopardising the very project the deed is meant to protect. This clause, designed to give a lender security, can become a financial stranglehold that brings your site to a grinding halt.
Key Takeaways
The Core Conflict: A Builder's Side Deed (or Tripartite Deed) attempts to balance a financier's need for project security with a builder's right to be paid, often putting the developer in the middle.
The "Cure Period" Trap: The most dangerous clause is the "Extended Cure Period," which allows a lender to freeze a builder's termination rights for months during a developer default, forcing the builder to carry costs without payment.
Project Survival Tactic: Developers must proactively negotiate fairer terms, such as shorter cure periods and clear cost-coverage mechanisms, to prevent the builder from becoming insolvent and jeopardizing the entire project.
Ipso Facto Stays: Recent changes to the Corporations Act prevent termination solely for insolvency, making the specific wording of default and step-in rights in a side deed more critical than ever.
Why Your Project's Financier Demands a Side Deed
When a developer secures funding for a construction project, the financier's primary concern is protecting their investment. They are lending millions of dollars against an asset that doesn't exist yet—a half-built structure has limited value. This is where the concept of a Builder's Side Deed, or Tripartite Deed, becomes a non-negotiable part of the project finance puzzle. Its core purpose is to manage construction risk by creating a direct legal relationship between the financier and the builder, effectively bypassing the developer in a crisis.
This deed establishes the lender's rights to "step in" and take control of a project if the developer defaults on their loan obligations. This ensures the asset they've financed can be completed and their lender security realised, rather than being left with an abandoned, worthless site.
What is a Tripartite Deed in Construction?
A tripartite deed is a three-party agreement signed by the Financier (the lender), the Developer (the borrower and principal under the construction contract), and the Builder. Its primary function is to modify the terms of the original construction contract to grant the Financier specific powers and privileges.
The most significant of these is the right to be formally notified of any developer defaults under the building contract (such as a missed payment) and, crucially, the right to "step-in" to the project to remedy—or "cure"—those defaults. It essentially gives the lender a contractual lifeline to the project, independent of their relationship with the developer.
The Three Key Players and Their Core Motivations
The central tension of a Tripartite Deed stems from the competing interests of the three signatories:
The Financier: Their goal is absolute lender security. They want maximum control in a default scenario to protect their capital. They seek the longest possible timeframes to assess a default and the broadest possible powers to take over the project if necessary.
The Developer: Their primary need is the project finance. They must appease the lender to get the project off the ground but also need to maintain a healthy, functional, and commercially viable relationship with their builder. They are caught in the middle, balancing their developer obligations with the lender's demands.
The Builder: Their motivation is simple: to build the project according to the contract and be paid on time for the work they perform. They want to avoid any external interference that disrupts cash flow or project momentum.
This inherent conflict of interest is what the deed attempts to manage, but the balance of power is rarely equal.
Why a Standard Construction Contract Isn't Enough for a Lender
A standard construction contract, whether it's an AS 4000 or a Master Builders template, creates rights and obligations exclusively between the developer and the builder. From a lender's perspective, this is a major vulnerability. If the developer defaults on their loan—for instance, by failing to meet a condition of their finance agreement—the lender has no direct power under the construction contract to keep the project moving.
They can't instruct the builder, they can't make payments to subcontractors, and they can't prevent the builder from walking off the site. The side deed remedies this by giving the lender a "seat at the table." It grants them the contractual authority to step into the developer's shoes and salvage their security (the project) directly, ensuring the building continues and their investment is protected.
Deconstructing the Tripartite Agreement: Key Clauses Explained
To understand the risks, developers must first understand the machinery of the document. A Tripartite Deed moves beyond the "why" and into the "what," laying out the specific legal mechanisms that give a financier control. Familiarising yourself with these standard clauses is the first step in identifying the dangerous, non-standard provisions that can follow. The key clauses revolve around step-in rights, notice of default, and security interests over site assets.
The Financier's Right to "Step-In"
The "step-in" clause is the heart of the side deed. This provision grants the lender the explicit right to assume the developer's role under the construction contract if a specified default occurs. This is the ultimate tool for protecting their mortgage security.
When a financier exercises their step-in rights, they can:
Issue directions to the builder and consultants.
Make payments directly to the builder for certified work.
Manage claims and variations.
Do whatever is contractually necessary to see the project through to completion.
Essentially, the developer is sidelined, and the lender takes control of the project's delivery to protect their financial position.
Notice Periods and the Obligation to Inform
For the step-in right to be effective, the financier needs to know when a problem has occurred. The deed therefore imposes a legal obligation on the builder to notify the financier directly if the developer breaches the construction contract. This is most commonly triggered by a failure to pay a progress claim. Once the notice of default is sent, the deed specifies a timeframe—the notice period—during which the financier can assess the situation, conduct due diligence, and decide whether to exercise their step-in rights or take other action. This period is a critical precursor to any intervention.
Security Interests and the PPSA
An often-overlooked but powerful clause in side deeds grants the financier a security interest over the builder's plant and equipment on site. This interest is typically registered under the Personal Property Securities Act 2009 (Cth) (PPSA).
The practical effect is significant: if the lender steps in, this clause gives them priority access to essential site materials, scaffolding, machinery, and equipment. It contractually prevents the builder from removing these items from the site, which would otherwise cause further delays and costs. For the lender, securing these assets is a critical point of leverage that ensures project continuity during a takeover.
The "Cure Period" Stranglehold: A Clause That Can Bankrupt Your Builder
While clauses like "step-in rights" are standard, the true danger for a project often lies in a seemingly innocuous provision: the "cure period." This is where the financier's desire for absolute security directly conflicts with the builder's need for consistent cash flow.
Lenders will often push for an "Extended Cure Period," a clause that can single-handedly create catastrophic project risk. It transforms the side deed from a safety net for the lender into a financial guillotine for the builder, and by extension, a disaster for the developer's project.
Defining the "Extended Cure Period"
In the context of a side deed, a "cure period" is the window of time a financier has after being notified of a developer's default to "cure" that default—for example, by making a missed payment to the builder. A short period of 10-15 business days is reasonable, allowing the bank to verify the claim and process the payment.
However, financiers frequently demand an "extended" period, often stretching to 60, 90, or even 120 days. During this time, the builder's contractual right to suspend work or terminate the contract for non-payment is completely frozen by the terms of the side deed.
Why This Clause Puts Your Builder in Financial Peril
This clause is a financial stranglehold that can lead directly to builder insolvency. While the builder's right to stop work is suspended, their obligation to continue building is not. They are contractually required to keep incurring massive costs—wages for staff and subcontractors, material purchases, site overheads, equipment hire—for months on end without receiving any payment from the defaulting developer.
There is also no guarantee that the financier will ever choose to "cure" the default or step in. The lender can use the full 90 or 120 days to assess their options, leaving the builder to fund the entire project out of their own pocket. For any builder, even a large one, this forced drain on cash flow is unsustainable and a direct path to financial collapse.
The Domino Effect: How a Builder's Collapse Sinks Your Project
The real danger for the developer is the inevitable domino effect. Consider this scenario: your project in Brisbane is 70% complete when you hit an unexpected financing snag and miss a multi-million dollar progress payment. The builder notifies the bank, triggering a 90-day cure period in the side deed. For the next two months, your builder continues to work, paying subcontractors and suppliers from their own capital, hoping the bank will step in. But 60 days into the period, having spent millions more without any income, the builder's cash flow dries up completely. They have no choice but to enter voluntary administration.
The result is a catastrophe the side deed was meant to prevent. You are left with a half-finished, abandoned site. The builder is bankrupt, key subcontractors have demobilised, and the project is now entangled in a complex and costly insolvency process. The financier's "protection" has directly caused the project's failure. With construction insolvencies accounting for 27% of all company failures last year, according to ASIC data, this is not a theoretical risk; it is a clear and present danger to any financed project.
Australia's Insolvency Laws vs. a Lender's Step-In Rights
The interaction between a financier's rights in a side deed and Australia's insolvency laws creates a complex legal landscape. Federal legislation designed to give financially distressed companies a chance to survive can clash with the aggressive step-in rights lenders demand. This legislative conflict is particularly relevant concerning the "Ipso Facto" stay regime and its impact on how and when a financier can take control of a project. Understanding this interplay is crucial for developers navigating a potential default scenario.
Understanding the "Ipso Facto" Stay Regime
The "Ipso Facto" stay was introduced by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017. In simple terms, this provision in the Corporations Act 2001 prevents a party from exercising a right to terminate a contract solely because the other party has entered a formal insolvency process (like voluntary administration or receivership). The name "ipso facto" literally means "by the fact itself." The law was designed to stop the domino effect of termination clauses that would kill any chance a company had of restructuring and trading out of its difficulties.
How Ipso Facto Laws Complicate a Financier's Strategy
These Ipso Facto stays force financiers to be more strategic when drafting and enforcing side deeds. A lender can no longer rely on a developer's or builder's insolvency alone as the trigger for their step-in rights. If the deed stated, "the financier can step-in if the developer becomes insolvent," that right would likely be unenforceable due to the stay.
To circumvent this, side deeds must now be meticulously drafted to tie step-in rights to other specific, tangible defaults that are not the insolvency itself. The most common and effective trigger is a failure to make a payment, as this is a clear contractual breach that occurs before and is separate from any formal insolvency appointment, ensuring the step-in rights remain enforceable.
What About the Builder's Right to Payment Under the BIF Act?
In Queensland, the situation is further complicated by the tension between a side deed's cure period and a builder's rights under the BIF Act. The Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) is designed to ensure cash flow by providing a rapid adjudication process for payment disputes. However, a side deed's extended cure period can practically undermine this. While a builder can still issue a payment claim and pursue adjudication under the BIF Act, the side deed contractually freezes their right to suspend work or terminate the contract.
This creates a challenging legal conflict: the builder may win an adjudication decision, but the financier's intervention and the contractual freeze create a complex and risky environment for enforcement. Navigating the intersection of federal corporate law, state-based security of payment legislation, and private contractual agreements is exceptionally difficult, and advice from an expert building and construction lawyer is essential to protect your interests.
A Developer's Playbook for Negotiating a Fairer Side Deed
As a developer, you may feel you have little leverage when a major bank presents its "standard" Tripartite Deed. However, accepting onerous terms without question is a critical mistake that jeopardises project viability.
The key is to shift the negotiation from simply accepting the lender's terms to mitigating clear and present risks to the project's completion. By proactively engaging in the negotiation process with your legal team, you can advocate for fairer terms that protect not only the builder but your entire investment.
Negotiating a Shorter, More Realistic Cure Period
The first and most important point of negotiation is the length of the cure period. You must instruct your lawyer to push back firmly against an extended period of 60, 90, or 120 days. The argument should be framed around project continuity. A "reasonable" period, such as 20-30 business days, provides the lender with ample time to assess the default, review the payment claim, and arrange funds if they choose to step in.
The core of your argument is that an excessively long period doesn't add security; it actively creates insolvency risk for the project's most critical asset—a solvent, functioning builder. Protecting the builder's financial health is synonymous with protecting the lender's security.
Insisting on Cost Coverage During the Cure Period
A powerful negotiation tactic is to propose a clause that forces the lender to have "skin in the game." This clause would state that if the financier wishes to enforce an extended cure period (beyond, say, 20 business days), they must agree to cover the builder's direct, verified costs incurred during that additional period. This could include wages, essential material costs, and site overheads. This simple change fundamentally alters the dynamic. It prevents the lender from freezing the project at the builder's sole expense while they deliberate. It aligns the financier's interests with the project's continuity and forces them to make a swift, commercially sensible decision rather than waiting out the clock.
Clarifying the Definition of "Default"
Vague language is a developer's enemy in any legal document, and especially in a side deed. It is crucial to argue for a precise and narrow definition of what constitutes a "developer default" that can trigger the deed's powerful clauses. Vague definitions like "failing to proceed with due diligence" or "in the financier's opinion, the project is facing undue delay" can give the lender excessive and subjective power to intervene. Reinforce the point by recommending that the definition of default be tied to clear, objective, and undeniable events.
The best trigger is a failure to pay a certified progress claim by the due date. This removes ambiguity and protects you from premature or unwarranted intervention based on a lender's subjective assessment of project progress.
When the Worst Happens: Default, Step-In, and Dispute Scenarios
Even with a well-negotiated side deed, a developer default can trigger a complex and stressful chain of events. When a financier activates the deed and exercises its step-in rights, the entire project dynamic changes overnight. Understanding the practical consequences and the potential avenues for dispute resolution is critical for navigating this high-stakes environment and underscores the need for expert legal guidance from the outset.
The Step-In Process: What Actually Happens on Day One?
The process begins the moment a financier formally issues a step-in notice to the developer and the builder. From that day forward, the practical reality on site changes dramatically. The financier's representatives, often a third-party project management firm or a specialist workout team, will arrive on site. They will now be the ones issuing instructions to the builder, authorising payments to subcontractors, and managing the project's administration. The developer's authority is effectively suspended. Establishing clear and formal communication channels immediately is vital to manage this transition, ensure project knowledge is transferred, and avoid further chaos and delays during the project takeover.
Can You Challenge a Financier's Actions?
Challenging a financier's step-in is difficult, but not impossible. The grounds for a challenge typically revolve around whether the lender has acted within the strict powers granted by the deed and whether they have acted in good faith.
For example, a developer might argue that a valid default had not actually occurred, or that the financier is using its powers for an improper purpose. However, this path almost inevitably leads to complex commercial litigation and the process of resolving construction disputes with a major financial institution is an expensive and time-consuming undertaking. Success depends heavily on the specific wording of the deed and the factual circumstances of the alleged default.
The Role of QCAT and Other Resolution Forums
The legal landscape can become fragmented during a step-in. While a major dispute between the developer and the financier over the step-in itself will likely end up in the Supreme Court of Queensland, other related disputes may not.
For instance, disagreements between the developer and the builder over the value of work performed up to the default date, or claims related to the defects liability period, might still fall within the jurisdiction of the Queensland Civil and Administrative Tribunal (QCAT). This can lead to parallel legal proceedings in different forums, adding another layer of complexity.
Managing these intersecting disputes requires a cohesive legal strategy, which is where Merlo Law's expertise becomes invaluable in coordinating actions across different legal venues to protect the developer's interests.
Conclusion
A Builder's Side Deed is an unavoidable component of modern project finance, but it should never be treated as a mere formality. For developers, the fine print of this agreement—particularly the "Extended Cure Period"—represents one of the most significant and least understood threats to a project's success. By allowing a financier to suspend a builder's payment rights for months on end, this single clause can trigger the very outcome it is meant to prevent: the insolvency of a key project partner and the subsequent collapse of the entire development.
The solution lies in proactive, informed negotiation. Developers, armed with a clear understanding of the risks and supported by expert legal counsel, must challenge onerous terms. By advocating for shorter cure periods, insisting on cost-coverage mechanisms, and demanding precise definitions of default, you can transform a one-sided instrument of lender security into a more balanced agreement that respects the commercial realities of construction.
In an industry where cash flow is king, ensuring your builder remains solvent is not just good practice—it is the ultimate form of project risk management.
FAQs
What is the primary purpose of a Builder's Side Deed?
A Builder's Side Deed (or Tripartite Deed) creates a direct contractual link between a project's financier and the builder. Its main purpose is to give the financier the right to "step in" and take control of the project if the developer defaults on their loan or the construction contract, thereby protecting the financier's investment and ensuring the project can be completed.
Why is the "Extended Cure Period" so dangerous for a construction project?
The "Extended Cure Period" is dangerous because it allows a financier to freeze a builder's right to suspend work or terminate a contract for non-payment for an extended time (e.g., 90-120 days). During this period, the builder is forced to continue working and incurring costs without being paid, which can quickly drain their cash reserves and push them into insolvency, causing the project to collapse.
Can a builder use the BIF Act in Queensland to get paid during a cure period?
Yes, a builder can still use the mechanisms of the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) to file a payment claim and seek adjudication. However, the side deed may contractually prevent them from suspending work even if they have a favourable adjudication decision, creating a complex legal conflict between their statutory rights and contractual obligations.
What are "Ipso Facto" stays and how do they affect side deeds?
"Ipso Facto" stays, under the Corporations Act 2001, prevent a party from terminating a contract solely because the other party has become insolvent. This means a financier cannot use a developer's insolvency as the only trigger for their step-in rights. The side deed must therefore tie these rights to other specific defaults, such as non-payment, to remain enforceable.
What are the three key terms a developer should negotiate in a side deed?
A developer should focus on negotiating three key areas:
A Shorter Cure Period: Argue for a reasonable timeframe (e.g., 20-30 business days) instead of 90+ days.
Cost Coverage: Propose a clause requiring the financier to cover the builder's costs if they enforce a long cure period.
A Clear Definition of Default: Ensure "default" is tied to objective events like non-payment, not subjective opinions.
What happens to the developer's role when a financier "steps in"?
When a financier "steps in," they effectively take over the developer's role and responsibilities under the construction contract. The developer's authority to direct the builder, approve payments, and manage the project is suspended. The financier or their appointed agent will manage the project through to completion to protect their security interest.
This guide is for informational purposes only and does not constitute legal advice. For advice tailored to your specific circumstances, please contact Merlo Law
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