In real estate financing, most loan documents restrict a
Borrower's right to alter the collateralized real property.
Alterations provisions in loan documents pertain to any
alterations, improvements, or demolition of any improvements to the
property. Since most real estate financing is non-recourse in
nature, the Lender is rightly concerned that alterations to the
collateralized property may impact the Lender's only asset in
the event of a Borrower default. Even when a financing is not
non-recourse, a Lender is also rightly concerned with alterations
to the real estate collateral since it is looking, either wholly or
partially, to that collateral as security for its loan.
In a typical transaction, alterations to the property which are
above a threshold or are “material” or
“structural” in nature will require the Lender's
prior written consent. The threshold under which the Borrower may
alter the property without the consent of the Lender is defined in
the loan
