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.
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