Florida Community Association Construction Law Blog

Its best with commercial loans to know your lender and foster a strong working relationship so that when challenges arise there is the opportunity to work towards a solution which satisfies both lender and borrower concerns. Unfortunately, with certain big banks, often borrower concerns fall on deaf ears.

Last year our firm handled a case where one of the nation's largest banks declared a default on a loan to a retirement facility which in the eleven years of the loan the facility had never missed a payment on and where the loan to value on the real estate was less than 25%. The facility was forced to re-finance in haste into a loan with inferior terms. Our firm represented the facility in seeking damages from the bank.

Knowing that the loan documents were skewed in the bank's favor (no surprise there) and the big banks had successfully lobbied an exemption from Florida's Unfair and Deceptive Practices Act, we had to come up with a novel theory to confront the bank's actions. Fortunately, under the common law, every contract, including a loan agreement, contains an implied covenant of good faith and fair dealing. This covenant is especially applicable where one side through greater market leverage is able to require a contract containing numerous "gotcha clauses" in its favor.

In the case of this loan to the retirement facility, the bank utilized a "gotcha clause" to declare a default. We convinced the arbitrator that the bank's use of this clause as a justification to call the loan without providing the facility with sufficient opportunity to cure constituted a breach of the bank's covenant of good faith and fair dealing.

Result: The bank had to write a big check to the facility and the individual guarantors, which check included the facility's attorney's fees.