Deed of priority

Definition

A deed of priority is an agreement among lenders that sets the ranking of their security over the same asset — confirming, for example, that one holds the first charge and another a second.

In plain terms

It stops two lenders fighting over the same collateral. Where an existing lender has an all-assets debenture, a new lender often needs one to release part of the security.

Why it matters for your company

A deed of priority (or a lender’s negative pledge waiver) is often the practical key to raising additional finance against already-charged assets. See intercreditor agreements.

In practice

Picture a UK limited company that already granted an all-assets debenture to its bank as security for an existing facility. The business now wants additional funding secured against specific assets — perhaps invoices, plant or a property interest — but the bank's charge already covers everything the company owns. Rather than the bank releasing its position outright, the two lenders negotiate a deed of priority that carves out an agreed order: the bank keeps its ranking over most assets while the new lender takes priority over the particular assets tied to its facility.

For the company, the practical effect is that a deed of priority is often what turns a declined application into an approved one. It does not remove the existing lender's rights, and it does not reduce the amount owed to either party — it simply clarifies who gets paid first from which asset if enforcement ever happens. Directors should expect their solicitor and the incumbent lender's solicitor to correspond directly, since the deed is a legal document signed by the lenders (with the company's consent), not something the company drafts itself.

Common pitfalls

The most frequent stumbling block is timing: because a deed of priority needs input and sign-off from an existing lender who has no urgency to move quickly, it can become the slowest part of an otherwise straightforward funding process. Directors are well advised to flag any existing charges to a prospective new lender at the earliest possible stage, rather than after terms have already been agreed, since discovering a prior debenture late can stall or unwind a deal.

A second pitfall is assuming a deed of priority is interchangeable with a full release of security or a straightforward negative pledge waiver — they serve related but distinct purposes, and a lender's willingness to agree one does not guarantee the other. Company directors should also keep in mind that any new arrangement affecting first charge ranking is a matter for the lenders' legal teams to formalise and register correctly, not something to treat as a formality that can be left until completion.