Pre-Negotiation Agreement
(Commercial Real Estate Acquisition Loan)

Summary

This template is a pre-negotiation agreement that may be used by a borrower and a lender when a commercial real estate acquisition loan is in default and the parties are about to commence negotiations concerning a potential workout of the loan. This template contains practical guidance, drafting notes, and optional clauses. Before any workout discussions commence, the lender should insist that the borrower and any guarantors enter into a pre-negotiation agreement. The primary purpose of a pre-negotiation agreement is to protect the lender from claims that the parties reached a workout agreement, which the lender did not intend. Pre-negotiation agreements usually contain the following terms with respect to the subsequent discussion of the parties relating to the loan default: • Non-Binding. The workout discussions are non-binding, and the parties will only be bound by a fully-executed written workout agreement. • Inadmissible. The workout discussions are inadmissible in any legal proceeding. • Termination. Any party may terminate the workout discussions at any time in its sole discretion, with or without cause. • No Waiver and Reservation of Rights. The workout discussions do not constitute a waiver of any borrower defaults or of the lender's rights and remedies under the loan documents, all of which are reserved and may be exercised by the lender at any time. • Alternative Opportunities. The workout discussions may not be successful, and the borrower should continue to pursue sale, refinancing and/or any other avenues for resolving the troubled loan. In an effort to improve its enforcement ability, the lender's pre-negotiation agreement may also require that the borrower and any guarantors make certain acknowledgments, stipulations, waivers, and/or releases. The borrower will argue that the pre-negotiation agreement should not improve the lender's position and that such provisions should be negotiated in the actual workout documentation; those arguments are oftentimes successful. Finally, the borrower will sometimes request that the lender agree in the pre-negotiation agreement to forbear exercising default remedies for a short period. However, that borrower request is rarely successful; the lender will argue that any forbearance should be negotiated in the actual workout documentation. For a template forbearance agreement, see Forbearance Agreement (Commercial Real Estate Loan). For a detailed discussion of workouts of commercial real estate loans, see Workouts of Commercial Real Estate Loans and 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). For a full listing of key content that provides an overview of several out-of-court restructuring options, including workouts, and liquidation alternatives to filing for bankruptcy protection, see Out-of-Court Restructuring and Liquidation Alternatives Resource Kit.