A due-on-sale clause is a provision in a mortgage that allows the lender to demand full repayment of the outstanding loan balance if the borrower sells or transfers the property, or in some cases transfers a controlling interest in the entity that owns it, without the lender's consent. The clause exists to protect lenders from having their loan assumed by a new owner they have not underwritten.
In commercial real estate, due-on-sale clauses have particular importance because ownership is often held through an LLC or partnership rather than an individual, and transferring interests in that entity, such as bringing in a new investor or restructuring ownership, can trigger the clause even without a traditional sale. Sponsors typically review loan documents carefully before restructuring an ownership group or admitting new capital, since violating a due-on-sale clause can accelerate the entire loan balance and force an unplanned refinancing.
Further reading: The Lightstone DIRECT Story
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