Leasing Commission and Tenant Improvement Holdback Clause
(Acquisition Loan Agreement) (Pro-Lender)

Summary

This clause is for use in an acquisition loan agreement where, at closing, the lender holds back a portion of the loan proceeds allocated to reimburse the borrower for leasing commissions and tenant improvement costs. The lender then disburses the holdback amount to the borrower once specified conditions are satisfied. This clause includes practical guidance, drafting notes, and optional clauses. A holdback is held in a lender-controlled account. The borrower and the property must satisfy a number of conditions before the lender will disburse the holdback amount to the borrower. Disbursement conditions in holdback provisions often include financial covenants that the lender uses to assess the property's economic performance. Given the intended use of the holdback in this clause, there are additional conditions tied to execution of leases and performance of tenant improvements. These conditions serve a number of purposes, including ensuring that the lender has an opportunity to review and approve of new leases, and that the lien of the mortgage on the real property is fully protected. Lien priority is of particular concern to lenders in the context of tenant improvement work (and the performance of work at the mortgaged property generally) because parties performing labor or providing materials may be entitled to file mechanic's liens that prime the lien of a mortgage. These clauses favor the lender and contain negotiating tips for the borrower. Conform the capitalized terms and section references in these clauses to the relevant loan agreement. For more information on the use of loan proceeds for leasing and tenant improvement costs, and for additional guidance on negotiating an acquisition loan agreement on behalf of your client, see Loan Agreement (Acquisition Financing). For an acquisition loan agreement template, see Loan Agreement (Acquisition Financing).