Commercial mortgage lenders require the borrower to be a single purpose entity whose only business is owning the property.

Purpose limitation. Organizational documents restricting the entity to owning and operating the identified property, prohibiting other business, other debt beyond trade payables within limits, and mergers or dissolution.

Separateness covenants. Separate books, accounts and financial statements; no commingling; arm’s-length dealings with affiliates; not holding out as a division of another entity; paying its own liabilities from its own funds; maintaining adequate capital; and using its own stationery and name.

Independent director or manager whose consent is required for a bankruptcy filing and for other material actions, and who owes duties that include consideration of creditors. Provisions purporting to eliminate the fiduciary duty of an independent director entirely have been questioned.

Non-consolidation opinion in larger financings, addressing whether a court would consolidate the borrower’s assets with an affiliate’s in a bankruptcy.

Recourse carve-outs. Breach of the separateness covenants, or a voluntary bankruptcy filing, converts non-recourse debt into full recourse against the guarantor — the springing recourse provision, and the one that produces the most litigation.

Practical compliance. Operating discipline, not merely documents.