Real estate finance—interest and interest period provisions in facility agreements
Real estate finance—interest and interest period provisions in facility agreements

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Real estate finance—interest and interest period provisions in facility agreements
  • Where to start with drafting interest and interest period provisions in a real estate finance transaction
  • Interest in a real estate finance transaction
  • Interest periods in a real estate finance transaction
  • Changes to the calculation of interest in a real estate finance transaction

One way for banks and other financial institutions to generate revenue is by charging interest on the loans they make. In order for a bank or financial institution to make money through its lending activities, the interest it charges must exceed the costs it incurs in lending the funds. See Practice Note: Interest—funding rates and margin.

Many of the interest and interest period provisions for a typical syndicated loan facility will be very similar to those used in a real estate finance transaction.

This Practice Note examines the interest and interest period provisions which may specifically apply in a real estate investment finance or development finance transaction.

Where to start with drafting interest and interest period provisions in a real estate finance transaction

The interest and interest period provisions for a particular transaction are usually agreed at term sheet stage before drafting the facility agreement. See the Loan Market Association (LMA) term sheet for real estate finance multiproperty investment transactions (available to members on the LMA website).

The LMA has clauses to cover these provisions in its:

  1. single currency term facility agreement for real estate finance multiproperty investment transactions (LMA Investment REF Facility Agreement), and

  2. single currency term facility agreement for real estate finance single property development transactions (LMA Development REF Facility Agreement),

together, the LMA REF Facility Agreements.

The interest