|Crocus are one of spring's pleasant surprises. Don't let loan covenants be an unpleasant one.|
Friday, March 16, 2012
Delinquent loans, mostly residential, are constantly in the news, so it is easy to understand why some business owners may lose track of the fact that missed payments are not the only way to get in trouble under commercial loans, or leases or joint venture agreements, for that matter.
Contracts, and a loan is just a type of contract, typically contain a number of promises, “covenants” in legalese, that the parties make to each other. In a business loan, the lender promises to lend money, and, in return, the business promises to repay that money plus interest. The borrower’s promises don’t stop there, however, and a failure to keep any one of those promises, a breach of covenant, can result in foreclosure or bankruptcy as easily a failure to make payments.
Medical marijuana poses a special problem for Colorado property owners. A typical covenant in a commercial real estate loan requires that the property be used in compliance with laws. Legal under Colorado, not legal under federal law; what’s a landlord with a loan to do? The safest choice is to not accept the tenant without lender consent.