Limitations on Recourse Clause
(Acquisition Loan Agreement)

Summary

This limitations on recourse clause is for use in a non-recourse real estate acquisition loan agreement. This clause is drafted from the perspective of the lender and the optional borrower provisions offer language that is favorable to the borrower. This clause includes practical guidance and drafting notes. The drafting notes include tips for negotiating on behalf of the borrower. For a full listing of key content covering construction, see Commercial Real Estate Acquisition Loan Resource Kit. For a full listing of key content covering acquisition financing, see Junior Associate Real Estate Resource Kit (Acquisition Finance). A non-recourse loan is a loan secured by a pledge of collateral, however, the borrower is not personally liable. See Non-Recourse Carve-out Provisions in an Acquisition Loan Agreement for further discussion of non-recourse carve-outs. If the borrower defaults under a non-recourse loan, the lender can only seize the collateral and nothing else, subject to certain exceptions contained in the limitations on recourse provision. This limitation on recourse clause sets forth the circumstances under which the borrower is liable to the lender (with such liability guaranteed by a guarantor acceptable to the lender pursuant to a separate guaranty) for certain acts or omissions (commonly referred to as "bad acts" of the borrower). The scope of the non-recourse carve-out provisions is determined, in large part, by the prevailing requirements of securitization underwriters and their counsel and may change over time. Attorneys representing borrowers should review such provisions carefully and attempt to negotiate them in a way that truly limits the recourse liability to actual acts of malfeasance by the borrower or its affiliates or principals. The capitalized terms and section references used in this clause should be conformed to the relevant acquisition loan agreement. See Acquisition Loan Agreements for a loan agreement template which includes limitations on recourse.