With regard to commercial real estate, an intercreator agreement is an agreement between two lenders that defines the rights and obligations of each party. Inter-17 agreements are most commonly used when mezzanine debt is superimposed on a priority commercial home loan. As a general rule, the agreement creates a large number of guarantees that protect the shares of this priority lender in the property if the borrower takes over the loan. In many cases, an intercreator agreement provides that in the event of a default, the junior lender cannot expedite the debt, take legal action, declare a formal default or require the borrower to remish all or part of the credit. Instead, they must notify the priority lender and wait for a certain period called the status quo period before they can take steps to claim repayment of a portion of the loan. This usually leads to what is called a payment freeze and usually takes between 90-180 days, or until the senior lender is fully eligible. In many cases, an intercreator agreement ensures that the primary lender recovers its losses in full, plus interest, before the junior lender can begin to receive its share of the proceeds from the sale of a property. However, this is determined by the exact nature of the subordination agreement between the two parties. Inter-secretary agreements focus on the rights and obligations of priority and mezzanine lenders, not borrowers. However, agreements reached by these parties can have a significant impact on borrowers` performance, particularly in the event of credit default. For example, an extended status quo regime could give a borrower more time to be up-to-date on their credit, which could potentially allow them to repair their default before their mezzanine lender takes control of the lender.
This is why borrowers should always read interbank agreements carefully where possible. In addition, they should normally seek the advice of an experienced lawyer or real estate advisor to ensure that the agreement does not contain inappropriate or unfair provisions. In some cases, status quo delays and related payment freezes may be caused by credit contract breaches that are not related to a monetary default, such as environmental issues or a violation of the rules of the vehicle of appeal (PES). This is sometimes referred to as a non-monetary standard. In most cases, the mezzanine lender supports the original borrower`s unit of ownership (i.e. the repossecing of the property for itself) and continues to make payments to the primary lender. However, a mezzanine lender could theoretically take over the unit of ownership and, instead of making payments, go bankrupt to recover their losses more quickly. However, this could allow the senior to be removed from his or her part of the property or, at the very least, to engage him in legal proceedings that could take months or even years. This is why many interbank agreements prevent the junior lender from taking control of a credit company and going bankrupt.