Lockout Periods in Real Estate
A lockout period prohibits loan prepayment for a specified time (typically 2-5 years in commercial loans). More restrictive than a prepayment penalty, lockout periods protect the lender’s expected yield. During lockout, the property can only be sold through loan assumption or defeasance.
How It Works
- Absolute prohibition on prepayment
- Cannot pay off, refinance, or sell requiring payoff
- Common in CMBS and life company loans
- Typical: 2-5 years for commercial
vs. Prepayment Penalty
- Lockout: no prepayment allowed (absolute)
- Penalty: prepayment allowed with fee
- Often combined: lockout then declining penalty
Sale Options During Lockout
- Loan assumption (buyer takes over obligation)
- Lender approval required; assumption fee 0.5-1%
- Defeasance: substitute securities for property
Related Terms
- Prepayment Penalty — Early payoff fee
- Mortgage — Loan security
Barnes Walker Real Estate Finance
Barnes Walker’s attorneys negotiate lockout and prepayment provisions in Florida commercial loans. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC