A financing contingency is a contract clause that allows a buyer to cancel a purchase agreement without penalty if they are unable to secure the necessary financing within a specified timeframe. This provision protects the buyer by ensuring they are not obligated to complete the transaction if they cannot obtain a loan or suitable financing terms.
On the Effective Date, the Company issued a press release announcing an increase in the price range of its previously announced modified “Dutch auction” tender offer (the “Tender Offer”) to purchase for cash up to $100 million of its Class A common shares, without par value (the “Shares”), as well as announcing the satisfaction of the financing condition to the Tender Offer. The Tender Offer was originally set at a purchase price not greater than $8.00 nor less than $7.00 per share to the seller in cash, less any applicable withholding taxes and without interest. Additionally, the Tender Offer originally was contingent on the Company entering into a term loan agreement for $135 million to be used principally to fund the Tender Offer (the “Financing Contingency”). As amended, the Tender Offer is now set at a purchase price not greater than $10.00 nor less than $8.75 per share to the seller in cash, less any applicable withholding taxes and without interest. Furthermore, as amended, the Tender Offer is no longer subject to the Financing Contingency as the Company obtained such financing pursuant to the Term Loan, as further described above under Item 1.01 of this Current Report on Form 8-K. The Tender Offer will expire at 11:59 p.m., New York City time, on July 7, 2023, unless extended or terminated. Attached as Exhibit 99.1, and incorporated by reference herein, is a copy of the Company’s press release dated June 23, 2023 related to the increase in the price range of the Tender Offer and satisfaction of the Financing Contingency.
Notwithstanding the foregoing with respect to the Review Period, Buyer shall have thirty (30) days following the Effective Date to secure any necessary financing, upon terms and conditions subject to Buyer’s approval, in his sole discretion (the “Financing Contingency Period”). Buyer may extend the Financing Contingency Period by up to ten (10) additional days by providing written notice to Seller of Buyer’s election to extend prior to the expiration of the Financing Contingency Period and depositing an additional $50,000 of nonrefundable Earnest Money (the “Additional Earnest Money”) with the Title Company in the same manner described in Section 4(a) above. Buyer may cancel this Agreement before the expiration of the Financing Contingency Period, in the event of Buyer’s failure to secure necessary financing for the contemplated purchase of 2 the Property, by delivering a cancellation notice to Seller and Closing Agent prior to the expiration of the Financing Contingency Period. If this Agreement is not cancelled as set forth herein, the Earnest Money shall be non-refundable unless Seller shall default hereunder, or in the event of a casualty or condemnation, subject to the provisions of Section 16.
3.Financing Contingency. 3.1The obligations of Purchaser hereunder are conditioned upon Purchaser obtaining financing on terms and conditions acceptable to Purchaser in its sole discretion. On or prior to forty-five (45) business days following the Effective Date, (the “Financing Contingency Period”) Purchaser will make reasonable efforts to obtain a written commitment from any institutional lender (or similar financing company) on terms acceptable to Purchaser in its sole discretion. Seller shall cooperate with Purchaser in obtaining the mortgage commitment, including but not limited to providing information and documentation, making any necessary requests or applications, or executing documents. The failure of Seller to cooperate within three (3) days following request from Purchaser shall, at Purchaser’s election, extend the Financing Contingency Period by one (1) day for each day of delay beyond the three (3) day request period. 3.2If such commitment is not issued on or before 5:30 p.m. (Eastern Time) on the last day of the Financing Contingency Period, then Purchaser may cancel this Contract by giving notice to Seller before the end of the Financing Contingency Period, including via electronic mail between counsel, in which case this Contract shall be deemed cancelled and thereafter neither party shall have any further rights against, or obligations or liabilities to, the other by reason of this Contract, except that the Earnest Deposit shall be promptly refunded to Purchaser. 3.3In the event Purchaser’s lender, after a commitment has been issued, refuses to fund the loan proceeds, including but not limited to the failure of a condition contained in the lender’s commitment or issues relating to title or the condition of the Property, as reasonably determined by the lender, then the Purchaser shall have the right to cancel this Contract and the Earnest Deposit shall be refunded in full to the Purchaser. Notwithstanding the foregoing, if the Financing Contingency Period and Inspection Periods have expired and Closing does not occur as required hereunder due to a failure of financing caused by fraud, an intentional misrepresentation or knowing breach of a warranty of the Purchaser, then the Seller shall have the right to terminate this Agreement and the Title Company shall release the Earnest Deposit to the Seller.
9.22 Debt Financing Contingency. Seller and Purchaser hereby acknowledge that a portion of the Allocated Purchase Price for the Tallahassee Property, the College Station Property, the Lubbock Property, the Waco Property and the Charlotte Property (collectively, the “Unencumbered Assets”) shall be paid by one or more loans from Fannie Mae (collectively, the “Financing”) in an amount(s) and on terms that are defined as follows: (i) a floating rate of interest of LIBOR (or such replacement floating rate index generally used by Fannie Mae in its floating rate commercial real estate loans) plus a maximum acceptable spread of 275 basis points; (ii) intentionally omitted; (iii) total minimum loan proceeds equal to $173,500,000.00; (iv) a minimum 4-year interest-only period; (v) a seven or ten year term; (vi) no more than an eighteen (18) month debt service reserve requirement; and (vii) reasonable and standard loan covenants and event of default provisions customarily utilized by Fannie Mae in their form of loan documents on the Effective Date across their student housing loan portfolio with the following additional items: (a) the loan documents shall impose no ongoing debt service or debt yield coverage requirements (“Financial Covenants”) measured periodically during the loan term that would require a prepayment of a portion of the loan or impose a cash management regime in the event of noncompliance with such Financial Covenants, (b) the loan documents shall not include prohibitions on partial releases of assets so long as Fannie Mae receives its customary release price and the borrower thereunder otherwise complies with customary and reasonable release requirements; and (c) the non-recourse carve outs (the loans must be non-recourse) must be reasonably acceptable to Purchaser, Purchaser agreeing that Section 3.02 of the Fannie Loan Agreement set forth on Exhibit “DD” attached hereto and made a part hereof is acceptable to Purchaser with the modifications thereto also set forth on Exhibit “DD” (collectively, the “Loan Terms”). Purchaser shall submit a complete application package to Fannie Mae for the Financing having a seven and ten year term with a 65% loan-to-value ratio not later than ten (10) business days after the expiration of the Inspection Period. In the event Fannie Mae does not issue to Purchaser a binding commitment for the Financing containing all of the Loan Terms on or before September 18, 2020 (herein, the “Financing Contingency”, with the date of issuance of the commitment being the “Financing Contingency Approval Date”), Purchaser shall have the right at its sole election either to waive the Financing Contingency and proceed with the purchase of the Property or, in the alternative, to terminate this Agreement, whereupon the Earnest Money shall be promptly returned to Purchaser and each of the parties hereto shall be relieved of all further obligations hereunder, except for the Surviving Obligations. In the event the foregoing loan commitment is issued as described above but prior to Closing is terminated by the lender based on the existence of a fact or event that could, in Lender’s sole judgment, reasonably be expected to adversely affect the value or marketability of the Financing or the Unencumbered Assets or the eligibility of the Financing for sale to Fannie Mae, then, notwithstanding anything contained herein, for all purposes of this Agreement, the Financing Contingency will be deemed to have not been satisfied by the Financing Contingency Approval Date and Purchaser shall have the right to either waive the Financing Contingency or terminate this Agreement as provided for above. Notwithstanding the foregoing, to the extent the Financing offered to Purchaser in a commitment contains the Loan Terms except that the interest rate spread is greater than 275 basis points (but in all events less than 375 basis points) and/or total loan proceeds less than $173,500,000.00, then Seller shall have the right, at its option, to require Purchaser to proceed to purchase the Unencumbered Assets at an adjusted Purchase Price calculated by inserting the total loan proceeds and spread offered in the commitment in the Excel model delivered to Seller electronically on July 31, 2020, a snapshot of which is attached as Exhibit “V” hereto and made a part hereof; provided, however, for purposes of calculating the adjusted Purchase Price the commitment option (seven or ten year term) that would result in the least amount of adjustment to the Purchase Price shall be used.
This proposed transaction is not subject to due diligence or a financing contingency, but is subject to the negotiation and execution of mutually agreeable documentation and the Company's Board of Directors approving the proposed transaction for purposes of Section 203 of the Delaware General Corporation Law.
Notwithstanding the foregoing with respect to the Review Period, Buyer shall have forty-five (45) days following the Effective Date to secure any necessary financing (the “Financing Contingency Period”. Buyer may cancel this Agreement before the expiration of the Financing Contingency Period, in the event of Buyer’s failure to secure necessary financing for the contemplated purchase of the Property, by delivering a cancellation notice to Seller and Closing Agent prior to the expiration of the Financing Contingency Period. If this Agreement is not cancelled as set forth herein, the Earnest Money shall be non-refundable unless Seller shall default hereunder, or in the event of a casualty or condemnation, subject to the provisions of Section 16.
8. FINANCING: ☐ (a) Buyer will pay cash for the purchase of the Property at Closing. There is no financing contingency to Buyer's obligation to close. If Buyer obtains a loan for any part of the Purchase Price of the Property, Buyer acknowledges that any terms and conditions imposed by Buyer's lender(s) or by CFPB Requirements shall not affect or extend the Buyer's obligation to close or otherwise affect any terms or conditions of this Contract.
A financing contingency is a clause included in real estate purchase agreements that allows the buyer to back out of the deal if they are unable to secure financing within a specified timeframe. This provision protects the buyer by ensuring that they are not legally bound to purchase the property unless they can obtain the necessary loan or mortgage. If the buyer cannot secure financing, they can typically cancel the contract without losing their earnest money deposit.
A financing contingency should be used whenever a buyer needs to secure a loan to purchase a property. It is particularly essential in the following scenarios:
Here is a basic template for writing a financing contingency in a real estate contract:
Financing Contingency Clause: This Agreement is contingent upon Buyer obtaining financing for the purchase of the Property. Buyer shall apply for financing within [X] days of the Effective Date of this Agreement and shall diligently pursue obtaining such financing. If Buyer fails to obtain financing on or before [specific date or number of days], Buyer may terminate this Agreement by providing written notice to Seller, and Buyer shall be entitled to a refund of the earnest money deposit. If Buyer does not terminate this Agreement by the specified deadline, the financing contingency shall be deemed satisfied, and Buyer shall proceed with the transaction.
Make sure to consult with a real estate attorney or professional to tailor the clause to your specific situation and ensure it complies with local laws and regulations.
Financing contingencies are most commonly found in the following types of contracts:
In conclusion, a financing contingency is a critical provision that helps protect buyers from financial risk, and it is important to understand when and how to use it effectively in real estate transactions.
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