A Guide To Understanding Non-Monetary Defaults

A lease may have a defaulter, and there are two type of defaults-monetary and non-monetary ones-that a tenant can commit. This post covers nearly every detail related to non-monetary defaults. A non-monetary default includes borrowers' taking actions; that are caused by either failing to do something required or committing a prohibitory act and must be defined within the lengthy “covenants” appearing in loan docs.

Depending on the loan doc, either of the defaults can come without any warning notice. During a non-monetary default, the property owner may need to send a formal notice and give a specific period to tenants to cure any shortcomings. (These notices become more important during non-monetary defaults than they are in monetary ones.)

In short, the design of a lease document should be clear and concise. However, many lenders and borrowers downsize the importance of such a lease agreement, and it becomes difficult to know the course of action while non-monetary defaults happen.

Park West Capital assists when lenders are stuck with borrowers and assets who are non-monetary defaulters

Many states have laws that instruct lenders to provide borrowers a notice that details the specifics associated to a non-monetary default and what should be done to cure it. Some U.S. states have a statute that makes it compulsory for lenders to send such a notice before accelerating the debt (in case of this type of default).

If the loan document states the lenders have to give one opportunity to cure any default and if they fail to do so, the borrower can raise an affirmative defense within the foreclosure action. So non-monetary defaults are often a gray area that has to be navigated with the experience of a commercial real estate attorney and or expert in many cases.

We, at Park West Capital, are a reliable alternative commercial real estate financing firm that knows the intricacies' associated to non-monetary defaults. If there are borrowers whose properties have faced a reduction in their respective equitable values (because of mismanaged properties or because of losing a tenant), then we can help with our no-doc-loans and bridge loans. These financial products help borrowers to refinance their properties that have suffered non-monetary defaults of any type.

Some tips about drafting clear lease documents

Generally, a lease defines the rent and the late-payment fees; while, a good lease doc must always define the responsibilities of tenants and how will they fulfill them. For instance, a lease must comprise different non-monetary covenants such as regularly adhering to ADA compliance for egress and ingress, defining parking restrictions, maintaining well-manicured exterior space, and not allowing pets inside a property. A non-monetary default occurs when the tenant ignores or disregards any of such covenants. That is, a lease must have all the points related to non-monetary defaults clearly defined, so tenants know that they have obligated themselves to maintain their end of the bargain. Also, the lease must clearly state that tenants will be held accountable if they are not obliging.

So if commercial or residential non-owner occupied property owners look forward to getting low-doc loans for refinancing a property that is experiencing a non-monetary default, then get in touch with us as we have enough experience and expertise to cater to your specific real estate financing needs for residential non-owner occupied and commercial assets.