What Is a Side Letter in Legal Terms

Ancillary agreements are quite common in real estate transactions, mainly because leases and real estate interests are often resold (assigned) contractually and the parties may not intend that certain aspects of the contract apply to successors. They can also be used for emergency situations where the main contract has not yet been concluded. Other common uses are as follows: Secondary letters are usually limited to the largest investors in a fund. In exchange for a large investment or an early investment, an investor may seek to agree on advantageous terms through a cover letter, which can range from reduced fees to higher investment capacity. The terms of a cover letter can vary greatly depending on the agreement between the fund and the investor. The documentation of many funds requires the investor`s lawyer to provide an opinion on certain issues. As a result, some investors require that this requirement be amended in a cover letter so that in-house legal counsel can appear instead of external legal counsel. These requests for cover letters can take many forms, including the requirement to change the frequency, format and content of the report. Some investors may have real tax concerns (for example. B the need for Schedules K-1 to prepare their U.S.

tax returns) or regulatory reporting issues (e.g. B, the need to comply with the Solvency II Directive (2009/138/EC)). Those conditions should be both economically reasonable and operationally feasible for the fund and its manager. For example, a request for information at portfolio level should not result in the investor holding information that he could use to his competitive advantage or to the detriment of other investors. This is a particularly sensitive area in the context of open-ended funds, where portfolio-level information should generally only be provided if it is outdated. B for example after subsequent trading of the portfolio, so that its current composition is not selectively shared. Once the main contract has been drafted and initiated for legal formalization, it may be necessary to incorporate last-minute changes. In such scenarios, it is better to draft a parallel agreement rather than completely modify the main contract. If a situation arises where the parties wanted to make changes to the main contract before it was completed or even after its completion, the changes made to the main contract may require a rewriting of the entire agreement or clauses, which could be inefficient in terms of time and resources, and this problem can be solved by a cover letter that varies and incorporates the desired changes.

Collateral agreements are an (increasingly) common way to formalize trading agreements between a private fund and an investor.1 Although they are more commonly used in the context of closed-end funds (given the limited withdrawal rights associated with these funds, the generally higher level of trading and greater structural complexity), they are also a feature of open-ended funds, e.B. whether there is a seed or cornerstone investor who invests significant capital, or an investor who is subject to a specific tax. or regulatory systems that require tailor-made conditions. In the field of private investment, the most important contractual provisions are the offer documents. The cover letter amends or supplements certain parts of the offer documents, which are generally preferred for the investor entering the cover letter. The ancillary agreement is not part of the underlying main contract (i.e. the offer documents). This is a “side” agreement between this investor and the fund promoter that completes the offer documents. The SEC also expressed concern about preferential access to portfolio or yield measures.

The information may allow some large, experienced investors to use the data to place the fund with their other investors. Therefore, ancillary letters should comply with both applicable securities laws and the basic documents of the underlying securities company and should be drafted in terms that do not compromise the exceptional status of the investment vehicle. Ancillary agreements can take many forms and can be known under various other conditions, depending on the nature of the transaction and the obligation between the parties to a main contract. .