Capital Replacements Reserve Clause Samples
The Capital Replacements Reserve clause establishes a dedicated fund set aside for the future replacement or major repair of significant assets, such as building systems or equipment. Typically, this clause outlines how contributions to the reserve are calculated, who is responsible for funding it, and the types of expenditures it may cover. Its core function is to ensure that sufficient financial resources are available when large-scale replacements or repairs are needed, thereby preventing unexpected financial burdens and maintaining the long-term value of the property.
Capital Replacements Reserve. On January 15, 2013, and by the fifteenth (15th) day of each January thereafter, Borrower shall pay to Lender, for deposit into a capital improvements reserve established by Lender (the "Capital Replacements Reserve"), an amount equal to the positive difference between (1) the product obtained by multiplying $0.10 by the existing number of rentable square feet in the Project and (2) the sum of all expenditures by Borrower for capital improvements and replacements to the Project during the preceding calendar year which were approved in advance by Lender and not paid with disbursements from the Capital Replacements Reserve (provided that for the calendar year in which the Closing Date occurs, such amount shall be pro-rated to reflect the portion of the calendar year during which the Loan is outstanding). The Capital Replacements Reserve will be held by Lender, without interest, and may be commingled with Lender's own funds. The Capital Replacements Reserve shall be advanced by Lender to Borrower for capital improvements and capital repairs to the Project, as approved by Lender; however, funds in the Capital Replacements Reserve shall not be available for financing any of the improvements for which capital improvements advances are contemplated by the Budget. Borrower grants to Lender a security interest in the Capital Replacements Reserve. While an Event of Default or a Potential Default exists, Lender shall not be obligated to advance to Borrower any portion of the Capital Replacements Reserve, and while an Event of Default exists, Lender shall be entitled, without notice to Borrower, to apply any funds in the Capital Replacements Reserve to satisfy Borrower's obligations under the Loan Documents in such order and manner as Lender shall determine in its sole discretion. Borrower and Lender shall meet annually on a date selected by Lender to establish monthly, quarterly, and annual budgets for capital expenditures for the Project for the succeeding calendar year (the "Capital Expenditures Budget"). The Capital Expenditures Budget shall be based on the previous year's experience and an assessment of anticipated future needs, and shall be subject to Lender's approval. The Capital Replacements Reserve shall be advanced in accordance with the conditions for improvements advances under Part D of Schedule 2.1.
Capital Replacements Reserve. Upon the occurrence of a Cash Flow Reserve Event, Borrowers shall pay to Administrative Agent an amount equal to the product obtained by multiplying the rentable square footage of the Projects which are then part of the Collateral by $0.10, such amount to be deposited into a capital replacements reserve established by Administrative Agent (the “Capital Replacements Reserve”). The funds held in the Capital Replacements Reserve may be advanced by Administrative Agent to Borrowers for capital replacements and capital repairs to a Project pursuant to a budget prepared by Borrowers and approved by Administrative Agent (such approved budget is referred to herein as the “Capital Replacements Budget”) which shall be a budget separate from the Capital Budget and the Capital Advance Budget; however, funds in the Capital Replacements Reserve shall not be available to pay for the costs any of the improvements for which Subsequent Advances for Capital Expenditures set forth in the Capital Advance Budget are contemplated by Section 3.3. The Capital Replacements Reserve shall be advanced in accordance with the conditions for improvements advances under Sections 3.2, 3.5(1) and 3.5(3)(2). Administrative Agent shall not unreasonably withhold its approval to the Capital Replacement Budget and any modification thereof proposed by Borrowers.