Reciprocal Easement Agreement
WHEN A CREATES A COMPLEX REAL ESTATE ASSET, such as a regional shopping mall or a multi-purpose project, different owners often own the different components, and different lenders take the different components as collateral. The developer often enters into a mutual facilitation agreement to bring things together and make each component work in the context of the entire project. In a project, each element could consist of land and improvements. In other cases, a component may consist of a three-dimensional space volume in the project. All of this can be large in size and complexity. One way or another, the project will look like a single building or development, but legally it will consist of several distinct components. It will also include general areas that will be used for the entire project or one or more elements. Typically, a central authority, controlled by the developer or project manager, will operate general areas and manage the project. Over time, most REAs change when circumstances change and components change ownership. In many cases, therefore, the REA will effectively consist of a series of REAs and separate amendments and ancillary agreements that can become quite complicated.
The basic rule is that the changes made during this process are important because they reveal changes in the circumstances and potential problems that arise in the REA. Sometimes the REA is modified and completely overhauled, which is often preferable at some point. When this analysis is carried out, the lender and its advisor will begin with an agenda similar to that resulting from the revision of a heavily negotiated lease. However, the process is complicated by the fact that all parties to the REA – and there could be many – want to negotiate the REA to make it work flawlessly and without problems. To the extent that the developer creates the REA before one of these parts is entered into the image, the developer will generally try to get the same result, but the document will probably be simpler. However, the developer can enter into separate agreements with some of the owners when they purchase their components. These separate agreements may add complexity, but the mortgage lender will only see such an agreement regarding its own borrower. On the other hand, leases tend to be more general and (in most cases) more biased towards a given party, often the lessor (the borrower).