The problem with a secondary letter is that its validity as a binding document can easily be questioned, even if the parties intend it to be legally binding at the time of enforcement, and this was highlighted in Barbudev v. Eurocom Cable Management Bulgaria EOOD and Others ([2011] EWHC 1560). Here are some practical considerations that might be relevant when managing a sub-letter fund: To the extent that a fund has a credit facility and one of the provisions described above is also covered by a most-favoured-nation law, these problems can be exacerbated as several investors may choose to obtain the problematic provisions. AIFMs may therefore include an exception in their standard most-favoured-nation clause with respect to ancillary transfer provisions affecting the Fund`s credit facility. This message explains what a secondary letter is and under what circumstances a secondary letter can be used. Credit facilities are an increasingly popular tool used by closed-end funds to meet short-term transition needs and facilitate the capital call process. However, they raise some different issues regarding collateral that can be problematic, particularly if the lender`s ability to take collateral is compromised or the credit base is otherwise limited. For example, when exclusion or transfer rights affect the existing credit check based on credit. Geraci LLP`s team of experienced lawyers specialises in drafting and reviewing contracts.

We will work with you to ensure that all applicable minor letter terms are seamlessly and efficiently incorporated into your fund agreement in a hassle-free and client-centric manner. Contact Geraci LLP here. Broadcasting rights are particularly relevant in the context of closed-end funds, where an investor cannot repay the fund if he or she wishes. AIFMs negotiating ancillary arrangements on behalf of a fund should ensure that a transfer right provides them with sufficient certainty as to the identity and nature of the acquirer (in particular where the fund has a credit facility and does not wish to jeopardise its credit base) and that appropriate customer due diligence information is provided in the frame of a transfer. General consent is therefore not advised. Portability is particularly important for some investors, such as some German pension funds4, who, for regulatory reasons, may need to demonstrate free portability (or as close to free portability as the fund can practically offer). A most-favoured-nation law allows an investor to choose to receive ancillary decision provisions negotiated by other investors.3 However, most-favoured-nation clauses can be formulated in different ways, meaning that what the investor is actually allowed to receive can be very different. For example, the wording may vary with respect to: (i) whether the most-favoured-nation clause applies to all ancillary deferral clauses or only, for example, to cost provisions, (ii) the most-favoured-nation clause applies only to provisions negotiated by other investors with equal or less investment in the funds (related investors are usually aggregated), and (iii) whether the investor can see all negotiated sub-agreements (whether or not it chooses to receive them) or only those it can receive. It is also common to establish certain conditions based on the most-favoured-nation clause, e.B rights granted to first-closing or seed investors, rights granted due to an investor`s specific legal, regulatory or tax concerns, and the right to sit on an advisory committee. But even with careful elaboration, a most-favoured-nation law can significantly expand the obligations of the fund (or manager); AIFMs should therefore carefully consider the conditions that investors are likely to be covered by the most-favoured-nation clause when negotiating these (and other) letter-of-page provisions. First of all, it is forbidden to use secondary letters to change the price in a real estate transaction. Since part of the total price would be included in the letter of guarantee, it would be possible to indicate a lower price in the main contract, thus reducing the tax base.

In this situation, the cover letter would not be valid and would also expose the parties to the cover letter as well as the professional author to sanctions. It is not uncommon to negotiate the implementation of cash withdrawals in a cover letter. The exact conditions depend on the documentation of the fund. As a general rule, a parallel agreement will require the fund to dispose of illiquid assets if the investor so wishes (especially with regard to the dissolution of the fund). It is common for parties who enter into a contractual relationship to enter into « ancillary agreements », usually in the context of commercial and commercial transactions. As the name suggests, secondary letters are complementary and complementary instruments to the main contract. It can be used to clarify, supplement, deviate or as a detailed extension of some of the terms of the main contract. There are many reasons why the parties enter into a parallel agreement under the main contract instead of including the content of the index in the main document. These are versatile and useful in cases where the parties seek to conclude their transactions without actually fulfilling the conditions of certain aspects of the business, the underlying general aspects of which may be included in the ancillary agreement, for ratification after completion. They can be beneficial in further clarifying the relationship and other private obligations between the parties to the main contract. Since contracts as such may be publicly available, some information relating to the transaction may be very private, confidential or sensitive information between the parties and which, if provided in the main contract, could prove detrimental to the interests of the parties and therefore preferably included in an ancillary agreement.

Secondary letters may need to be sent to third parties if the terms of a master contract are changed. For example, in leases, concessions such as a shorter lease period or consent to subletting by the landlord are often granted to the tenant through a cover letter. In our example, the potential buyer must be informed of the various concessions granted. The last and probably the most important criterion is consideration (a form of payment). The counterparty does not have to take a monetary form and can simply be a mutual benefit (or disadvantage). As a rule, a cover letter is used to clarify the details of the contract and, therefore, the need for consideration is satisfied, as there is an advantage for both parties. In the absence of benefit or payment, a subsidiary letter can only become legally binding if it is signed as an act, which means, among other things, that it must indicate that the secondary letter is an act and that the signatures of the parties must be attested. As for the form, in most cases, a secondary letter is based on consensus. Although ancillary claims may in principle be concluded orally, the parties may wish to ensure sound evidence. Some transactions will even require legal formalism.

An illustration is provided by the Civil Code (BGB), which stipulates that the purchase of a house must be made before the notary (Art. 311b I 1 BGB), otherwise is considered invalid (Art. 125 BGB). This paragraph also applies to accessory letters that are considered invalid if they do not comply with this formal requirement. This could affect the entire contract and invalidate it (§ 139 BGB). In the main contract, particular attention must be paid to the choice of law provision and the entire contractual clause. The choice of law provision may have various consequences that affect the secondary letter. .

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