The Loan Market Association (LMA) has published a form of facility agreement for use in real estate investment finance transactions
The publication is the first of its kind from the organisation, which has previously focused on primary documentation for the investment grade and leveraged finance markets. It signals the organisation's 'commitment to expand its suite of documentation into more specific debt sectors'.
The facility agreement was developed by a working party comprising representatives from banks and law firms. Although the panel lacked borrower representation, it is intended to reflect current market practice in the syndicated real estate finance market. The document follows the framework and boilerplate of the investment grade and leveraged forms of facility agreement published by the LMA.
The LMA's documentation is widely recognised and accepted as the market standard within the corporate loan market. This status has brought benefits to those operating in this market, principally in the form of increased efficiency in document production and negotiation. Assuming wide-scale adoption of the new agreement, the document is expected to bring similar benefits to the real estate finance market, allowing parties more time to focus on commercially important terms.
The document is drafted for use in the financing of investment property and assumes the most common form of transaction structure. It will require modification for use in relation to development finance in particular, and to make it suitable for the variety of loan structures used in the sector. We anticipate that there will be some adjustments following initial use, particularly in relation to the transferability provisions and simplification of the boilerplate.
The present practice among lenders in the real estate finance sector involves the use of lenders' in-house forms of agreement or forms prepared by external counsel which can vary significantly. Lenders adopting the LMA form will benefit from the use of a document which is consistent with that used by other lenders in the market. This is likely to result in loans being more readily transferable as they will be based on a recognised standard. The use of the document will be encouraged by the LMA's policy of continuous review of its published documentation and its publication of guidance notes to accompany them.
The LMA is an industry body of participants in the syndicated loan market. The single currency term facility agreement for real estate finance was published on 16 April 2012, and is available to its members through the organisation's website.