Deed of subordination vs deed of postponement: what's the difference?

Why lenders ask for these deeds

When a lender advances money, it wants to be sure it ranks ahead of other people the borrower owes. If a director has lent money to their company, or another lender already has a charge over a property, the new lender may ask them to step back. These deeds record that agreement.

Deed of subordination

A deed of subordination ranks debts. The most common example is a director who has lent money to their own company. The bank lending to the company asks the director to agree that:

• the company won’t repay the director’s loan (or will only make limited payments) until the bank has been repaid
• if the company becomes insolvent, the bank is paid before the director
• any money the director receives in breach of the deed must be passed to the bank

The director’s money is effectively locked in the business. If you were planning to draw it down to live on, or to fund another project, that may no longer be possible.

Deed of postponement or priority

A deed of postponement, or deed of priority, usually ranks security. It’s used when two lenders both have charges over the same property and need to agree whose charge comes first when it is sold. For example, a family member who lent money secured on a property may be asked to postpone their charge behind a new mortgage lender.

The deed may also cap how much each lender can recover in priority. That’s important: if the first lender’s debt grows, the person behind them gets less.

In practice, the terms are used loosely and documents can do both things. What matters is what your document actually says.

Side by side

Questions to ask

• Can I receive any repayments or interest while the lender’s loan is outstanding?
• Is there a cap on the amount that ranks ahead of me?
• When does the deed end?
• Am I also being asked for a personal guarantee?

Independent legal advice

Lenders often require a solicitor’s certificate confirming you understand the deed and are signing freely. Your solicitor explains how the deed affects your ability to be repaid, what happens in an insolvency, and signs the lender’s certificate. See ILA for a deed of subordination.