We Can Work It Out: The Need For Pre-Negotiation Agreements

In light of the current economic climate, real estate lenders and borrowers will certainly be communicating with one another frequently concerning potential loan modifications and accommodations. It is prudent for lenders to require that the parties enter into a pre-negotiation agreement, or a "PNA," as a sine qua non to having such communications.

A PNA is an agreement between a borrower and lender which sets forth the framework that will govern discussions surrounding potential loan modifications, accommodations or restructuring, without the lender forfeiting its ability to enforce the loan documents. Upon executing a PNA, the parties thereto are not bound by the ensuing discussions unless and until the terms of a proposed modification have been documented in a formal written agreement executed by the necessary parties. In addition, a PNA provides comfort to a lender that the borrower will acknowledge the validity and enforceability of the loan documents.