What is a Subordination Agreement Review?
A subordination agreement is a legal document that serves to protect creditors by ensuring that outstanding debts will be paid. It basically specifies the order in which debts are paid, depending on their priority.
If you’ve drafted a subordination agreement, you’ll want to review it so that it’s clear and specific to prevent disputes.
Read the rest of this article to clarify what you should review in a subordination agreement and how a qualified lawyer can help you navigate a professional review of your contract.
What Terms Should You Review in a Subordination Agreement?
The following common terms included in a subordination agreement should be reviewed for clarity:
- Parties. Identify the lenders involved, such as senior and junior lenders, so that it’s clear who will be repaid first.
- Subordination. Check that the agreement states that the junior lender agrees to only being paid after the senior lender receives payment.
- Changes. If there are any amendments made to the agreement terms, it should be clarified how they can be approved.
- Standstill provision. Ensure that the agreement prevents the junior lender from demanding to be paid.
- No payment clause. This clause specifies that the borrower can’t pay the junior lender if senior debt hasn’t first been paid off.
- Solvency condition. It’s important to clarify what conditions could remove the subordination order.
How Do You Review a Subordination Agreement?
Once you’ve checked some key terms in the subordination agreement, there are other things to consider during your contract review.
Identify the Debts
Make sure that the subordination agreement specifies information about the loan or debt being paid off to provide clarity for parties. Include details such as their original principal amounts.
Check the Standstill Period
When reviewing the standstill period, the number of days that the junior lender should wait prior to taking enforcement action after informing a senior lender of a default, make sure that it’s clearly specified. It must also be aligned with the cure period in senior loan documents.
A cure period is the specific timeframe a junior lender has in which to remedy a financial mistake or breach before the senior lender can penalize them.
Refer to Related Documents
Check all facts in the subordination agreement for accuracy. Remember to refer to related documents, such as loan documents, so that there’s consistency and you can avoid ambiguity that could result in disputes.
Consider Senior Lender Rights
You want to determine what rights the senior lender has to change or enforce the loan without requiring consent from junior lenders. This must be clearly defined to prevent the junior creditor from being unfairly exposed. Check any limitations applicable to the junior lender.
Negotiate Subordination Agreement Terms
You can negotiate terms in the agreement for more favorable ones. Some of the most common terms to discuss include payment rights and notice requirements for defaults. If you’re unsure of how to negotiate the agreement, you should consult a qualified lawyer to help you.
Do You Need a Legal Review of a Subordination Agreement?
Since a subordination agreement can contain technical terms and affect your financial obligations, it’s crucial to hire a lawyer to review it for accuracy.
A lawyer will conduct the following during a subordination agreement review:
- Considering exactly what is subordinated so that parties have clarity.
- Analyzing all senior lender rights so that there’s no ambiguity.
- Reviewing standstill provisions. They’ll check how long junior creditors must wait before taking enforcement action and what will trigger the waiting period.
- Checking payment restrictions and terms to prevent disputes.
- Spotting any hidden terms or provisions that you might not notice and which could put you at financial risk.
- Comparing your subordination agreement with other loan documents so that there are no conflicts.
- Clarifying when the subordination ends as well as all termination provisions.
- Flagging any clauses that are one-sided and which could result in issues, such as by restricting the junior creditor from collecting their payment or enforcing their rights.
Where to Find a Lawyer for a Subordination Agreement Review
If you’ve ever had to find a lawyer, you’ll know that it’s not always easy to locate one who’s experienced and reputable. Cold-calling traditional law firms can feel draining. Using an online legal platform instead makes the lawyer search a stress-free process by putting you in touch with experienced and professional lawyers.
ContractsCounsel is one of the largest online legal marketplaces that connects clients with a curated network of lawyers who have been vetted on the platform. All the lawyers have the expertise and experience to assist you with a review of your subordination agreement, giving you peace of mind about your arrangement.
To request that a lawyer on the platform reviews your subordination agreement, you don’t have to leave your home. Here are the easy steps to follow:
- Go to the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Contract review.’
- Post your project or request for a contract review. It’s free.
- Include some details of what you require, such as if you’re concerned about certain aspects of the agreement, to help you match with suitable lawyers on the platform.
- Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform who are ready to help you.
- Review the lawyers’ information. Before selecting a lawyer, you can review the platform’s lawyer information, such as their location, expertise, years of experience, credentials, and client ratings for previous projects completed on the platform.
- Select a lawyer who seems like a good fit for your requirements and hire them to review your subordination agreement for a flat fee.
