Mortgaged Property Covenant Clauses
(Acquisition Loan Agreement, Commercial Real Estate)

Summary

These mortgaged property covenant clauses are for use in an acquisition loan agreement in a commercial real estate financing transaction. These clauses consist of affirmative and negative covenants that address the borrower's obligations with respect to owning, maintaining, and managing the mortgaged property. These clauses include practical guidance and drafting notes. Common affirmative covenants include those requiring the borrower to: • Meet financial obligations • Pay taxes • Maintain business structure • Carry adequate insurance • Maintain and repair the collateral • Keep accurate financial records Negative covenants are designed to limit or restrict the borrower's use, operation, and management of the mortgaged property during the period of the loan repayment. By restricting certain operational and financial activities, the lender aims to minimize risk by preventing the borrower from impairing its ability to repay the loan. Common negative covenants: • Prohibit the borrower from taking on additional debt • Place a limit on the level of capital expenditures • Prohibit the pledging or selling of the collateral The borrower should carefully examine the rights and remedies under the loan agreement following a breach of a covenant (e.g., whether lender may call the loan and whether borrower has an opportunity to cure). A borrower with a lower risk profile may see fewer restrictions and/or have greater negotiating power to eliminate or limit the number and scope of the covenants. Modify the defined terms in these clauses to conform to the terms used in the acquisition loan agreement and other loan documents and define any undefined terms as needed. These clauses are non-jurisdictional; be sure to ensure that they comply with applicable state law. For additional affirmative and negative loan covenants, see Articles IV and V of Loan Agreement (Acquisition Financing). For more information on loan covenants in general, see Acquisition Loan Agreements.