The Loan Market Association (LMA) has published a revised version of its REF Investment Agreement (or, to give it it’s full name, its Single Currency Term Facility Agreement for Real Estate Finance Multiproperty Investment Transactions).

The changes made are intended to reflect the market position in a number of areas.  Key changes include:

  • tweaking of the insurance requirements, including clarification that the Finance Parties should not have a duty of disclosure unless or until they enter into possession of the property (already commonly negotiated and seen in the LMA REF broker letter template);
  • provisions to take into account asset managers (similar to those already in place for managing agents); and
  • optional restrictions on debt purchase transactions (a concept that is also in the LMA leveraged agreement),

as well as some commonly included points, such as energy efficiency certificate (EPC) provisions and a carve out of the ranking of security representation to take into account perfection requirements (such as registration) that may not be possible prior to completion.

The accompanying User’s Guide has also been updated.

IFRS 16 changes

The changes come on the back of last month’s publication of a suite of revised agreements by the LMA to take into account IFRS 16. IFRS 16 will, from January 2019, change the accounting treatment to remove the distinction between operating and finance leases. Currently operating leases are usually excluded (one way or another) from definitions of indebtedness and EBITDA. Unless operating leases are specifically excluded from definitions, the changes could result in increased indebtedness and EBITDA which could impact on financial covenants and other indebtedness related covenants.

In the pipeline…?

It seems likely that a revised version of the REF Development Agreement will follow in due course.  The documents have become a common real estate market standard since first publication in 2012 and firms look forward to publication, expected later this year, of the first LMA debenture for real estate transactions.

For more information, email blogs@gateleyplc.com.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.