Single Purpose Entity Requirements

In real estate transactions involving financing, lenders often require that borrowing entities restrict their activities to owning a single asset, which is the real property that is securing the loan. While each lender has its unique single purpose entity requirements, the following is an examples of restrictions commonly required by lenders:

Sample Single Purpose Entity Provision

The LLC shall conduct its affairs in accordance with the following provisions:

(a) It shall establish and maintain an office through which its business shall be conducted separate and apart from that of any of its Affiliates or any Person and shall allocate fairly and reasonably any overhead for shared office space.

(b) It shall maintain separate records and books of account from those of any Affiliate or any Person.

(d) It shall conduct its own business in its own name.

(e) It shall maintain financial statements separate from any Affiliate or any Person.

(f) It shall pay any liabilities out of its own funds, including salaries of any employees, not funds of any Affiliate or any Person.

(g) It shall maintain an arm’s length relationship with any Affiliate or any Person.

(h) It shall not guarantee or become obligated for the debts of any other entity, including any Affiliate or any Person or hold out its credit as being available to satisfy the obligations of others.

(i) It shall use stationery, invoices and checks separate from any Affiliate or any Person.

(j) It shall not pledge its assets for the benefit of any other entity, including any Affiliate or any Person.

(k) It shall hold itself out as an entity separate from any Affiliate or any Person.

(l) It shall not acquire any real or personal property other than the property located at [________] and known as the [______ Apartments] (the “Mortgaged Property”) and personal property related to the operation and maintenance of the Mortgaged Property;

(m) It shall not operate any business other than the management and operation of the Mortgaged Property; and

(n) It shall not maintain its assets in a way difficult to segregate and identify.

For purpose of this Certificate of Formation, the following terms shall have the following meanings:

“Affiliate” means any Person controlling or controlled by or under common control with the LLC including, without limitation (i) any Person who has a familial relationship, by blood, marriage or otherwise with any partner or employee of the LLC, or any Affiliate thereof and (ii) any Person which receives compensation for administrative, legal or accounting services from this LLC, or any Affiliate. For purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization, or government or any agency or political subdivision thereof.