A key person clause is a contractual provision in a CRE limited partnership or fund agreement that gives investors specified rights if one or more designated individuals, typically the senior principals of the general partner responsible for investment decisions, cease to be actively involved in managing the fund. The clause reflects the reality that institutional CRE investment mandates are frequently underwritten on the track record and judgment of specific individuals, not on organizational infrastructure alone.
If those individuals depart, the LP's investment thesis changes in a way the fund documents may not adequately address through ordinary removal procedures.
Key person triggers vary by fund structure but commonly include departure, termination, death, disability, or criminal indictment of the named individual or individuals. Some agreements trigger on the departure of any single key person from a list; others trigger only if a majority of named key persons depart within a specified period.
The distinction matters: a fund with three co-equal co-founders named as key persons that triggers on any single departure gives LPs a much more powerful protection (and the GP a much stronger retention incentive) than one that requires two of three to depart before the clause activates.
Investor remedies upon a key person trigger typically include some combination of suspension of the GP's right to make new investments (a capital call halt), a right to remove the GP with or without cause, and in some cases, enhanced liquidity rights. The suspension of new investment activity is the most common primary remedy: it stops the clock on the fund's deployment without requiring a full GP removal process, giving LPs time to evaluate the situation and negotiate a resolution.
Some agreements provide a cure period, a window often of 180 days during which the GP can designate a replacement key person acceptable to a requisite percentage of LPs, before the more disruptive consequences (removal rights, winding up) become available.
Negotiating key person clauses requires LPs to balance protection against rigidity. A clause that is too easy to trigger can be used strategically by minority LPs dissatisfied with the fund's performance for reasons unrelated to key person continuity; a clause that is too hard to trigger provides no meaningful protection against the genuine scenario it is designed to address.
Sophisticated LPs negotiate key person provisions that name specific individuals by name (not by title, which can be circumvented by promotion or restructuring), define departure clearly to include de facto departures (reductions in time commitment below a threshold, not just formal resignations), and pair the key person trigger with a clear governance mechanism for LP coordination rather than leaving the remedy entirely to ad hoc negotiation.
A key person clause responds to the reality that institutional mandates are frequently underwritten on the track record and judgment of specific principals, not on the firm's organization alone. If those people leave, the LP's investment thesis changes in a way ordinary GP-removal procedures may not capture.
Triggers vary by fund but commonly include the death, disability, departure, termination, or criminal indictment of a named individual. The threshold structure matters: a fund that triggers on any single named person departing gives LPs a much stronger protection, and the GP a stronger retention incentive, than one that requires a majority of named persons to leave before the clause activates.
Remedies typically combine some or all of: suspending the GP's right to make new investments (a capital-call halt), a right to remove the GP with or without cause, and sometimes enhanced liquidity rights. Suspension of new investment is the most common first step, because it stops the clock on deployment without requiring the disruption of a full removal process.
Many agreements provide a cure period, often about 180 days, during which the GP can designate a replacement key person acceptable to a required percentage of LPs before the more severe consequences, such as removal rights or wind-up, become available. The cure period balances the LPs' need for continuity against the GP's need for a workable path to keep managing the fund.
The number of named key persons and the departure threshold set how easily the clause triggers. Too easy, and dissatisfied minority LPs can weaponize it over performance issues unrelated to key-person continuity; too hard, and it offers no real protection against the scenario it exists for. Naming several co-principals with an any-one trigger is powerful; requiring two of three to depart is far weaker.
Sophisticated LPs name individuals specifically rather than by title (which promotion or restructuring can circumvent), define departure to include de facto reductions in time commitment below a stated threshold, and pair the trigger with a clear LP-coordination mechanism rather than leaving the remedy to ad hoc negotiation. This is distinct from a clawback, which recovers over-distributed promote and does not address who is running the fund.
A key person clause is a provision in a fund or joint-venture agreement that gives investors specified rights if one or more named principals stop being actively involved in managing the vehicle. It exists because investors often commit based on specific individuals' judgment and track record, not the firm alone.
Common triggers are the death, disability, departure, termination, or criminal indictment of a named key person. Some agreements trigger on any single named person leaving; others only if a majority of the named persons depart within a defined period. The best clauses also capture de facto departures, such as a large drop in time commitment.
The typical first consequence is a suspension of the fund's investment period, halting new capital calls while LPs assess the situation. Depending on the agreement, LPs may also gain the right to remove the general partner, with or without cause, and sometimes enhanced liquidity or wind-up rights.
It is a window, often around 180 days, in which the general partner can propose a replacement key person acceptable to a required percentage of LPs before harsher remedies take effect. It gives the GP a path to restore continuity and keep managing the fund rather than facing immediate removal.
A single key person provision triggers when any one named individual departs, giving LPs strong protection and the GP a strong retention incentive. A multiple key person provision triggers only when several named persons leave (for example, a majority), which is weaker protection because losing one principal does not activate it.
No. A key person clause addresses who is managing the fund and gives LPs rights if named principals leave. A clawback addresses money, requiring the GP to return promote it was overpaid if final results fall short. They solve different problems and often appear in the same agreement.
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