In real estate development, it is sometimes necessary for a borrower to receive funds from more than one lender. In this case, a priority structure will likely be put in place among the lenders involved in the transaction. Often, at the request of the lender in a position of absolute priority (the “previous lender”), a “priority” or “subordination agreement” agreement is required by any “subordinated lender” that ranks behind the previous lender. Other issues addressed in the priority and status quo agreement may be the following: one of the key themes addressed in this type of agreement is what happens when the borrower is late. For example, lenders may agree to inform each other about the borrower`s default and give the opportunity to cure the default. A more recent typical requirement for a former lender that respects the borrower`s default is that the subordinated lender not take enforcement action without the agreement of the previous lender. In other words, the subordinated lender must “stand up” and wait to see what the previous lender will do. A standstill agreement is an agreement between the company and its creditors that limits creditors` enforcement actions (see above: standstill agreement). The duration of the standstill period is usually negotiated, as younger, priority creditors have competing interests. As a general rule, the recreated creditor will prefer a shorter standstill period, as it will endeavour to initiate co-enforcement measures in the event of late payment. However, the priority creditor will generally prefer a longer standstill period, which will give it more time to implement its own collateral implementation strategy.

While the duration of the shutdown varies, most are between 90 and 180 days. There are several factors that are specific to the circumstances of each transaction and can influence the length of the standstill period, including: property owners or developers often provide project financing by different lenders, often for specific purposes. For example, a condo developer may obtain construction financing for most of its expected costs. You can also get a secondary tranche of mezzanine financing. This usually bridges the gap between borrowing requirements and capital requirements, as mentioned in our article titled The Capital Stack. What you need to know. A subordination and standstill agreement defines the specific or general collateral used, the junior lender`s rights to payments and the priority of those rights. The agreement contains a detailed definition and description of the conditions of subordination and what happens in the event of default or bankruptcy. .

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