Scenario 03

---
name: draft-lpa-scenario-03
task_id: funds-asset-management/draft-lpa/scenario-03
description: Draft a limited partnership agreement for a real-estate-focused fund with operational ERISA compliance provisions, including REOC exemption mechanics, real estate valuation requirements, and subscription facility terms, while flagging source-document conflicts in a companion issues memo.
activates_for: [planner, solver, checker]
---

# Skill: Draft LPA with ERISA REOC Exemption

## 1. Subject-matter triage

- Treat the fund formation documents as a drafting package, not a memo exercise: the LPA is the primary deliverable, and the issues memo is secondary.
- Read the precedent, term sheet, ERISA memo, fee schedule, facility terms, and GP structuring memo together before drafting; use the ERISA memo as the controlling source for the operational compliance structure unless the package clearly overrides it.
- Separate three workstreams early: fund governance and economics, ERISA/plan-asset mechanics, and financing mechanics tied to the subscription facility.
- Identify at the outset whether any source document requires a single integrated provision or a fallback alternative; do not bury unresolved choices in commentary.

## 2. Failure modes the skill is correcting

- Treating ERISA analysis as generic disclosure language rather than drafting operational provisions embedded in the LPA that govern ongoing compliance obligations.
- Omitting the REOC mechanics that make the exemption work in practice: qualifying-asset test, basis for measurement, initial valuation date, recurring valuation period, management-rights covenant, exercise-of-rights covenant, and remediation path.
- Using market-value concepts interchangeably with compliance-test concepts and thereby breaking the distinction between testing basis and reporting basis.
- Failing to hardwire LP representations and recordkeeping around ERISA status even where REOC treatment is expected.
- Misstating how a subscription facility interacts with capital calls, borrowing limits, repayment timing, and preferred-return accrual.
- Carrying forward source-document conflicts without flagging them distinctly in the issues memo.
- Drafting only a narrative explanation instead of operative LPA language.

## 3. Legal frameworks / domain conventions that apply

**ERISA plan asset regulation and REOC exemption**
- The relevant plan-asset framework is ERISA and the Department of Labor plan asset regulation, including the real estate operating company exemption under 29 C.F.R. § 2510.3-101.
- The LPA should implement, not merely describe, the exemption’s core elements: qualifying real estate assets, valuation methodology, initial testing date, recurring annual valuation period, and substantial management rights.
- The fund should be drafted so the REOC analysis is tied to the correct compliance basis and not to casual fair-value concepts used for reporting.

**Valuation and appraisal conventions**
- Real-estate valuation provisions should require periodic independent appraisal work consistent with generally accepted appraisal standards.
- The LPA should distinguish compliance-testing value from NAV, distribution, or reporting value.
- If appraisal timing, valuation agent, or methodology affects multiple provisions, align those references across the economics and compliance sections.

**LP status and ERISA representations**
- Even where the fund expects REOC treatment, each investor should represent its ERISA status and the fund should maintain ownership-percentage records for benefit-plan investors.
- If the structure contemplates an alternative ERISA defense or backup construct, it should be drafted consistently with the primary structure and not left as an implied option.

**Subscription facility mechanics**
- If the fund uses a subscription credit facility, the LPA should address borrowing authority, collateral support, capital call sequencing, repayment timing, and whether preferred return accrues from call date or investment funding date.
- Financing mechanics should be integrated with the default capital-call provisions so the agreement does not create conflicting timing obligations.

**Controlling authority discipline**
- Cite the governing legal source for each substantive ERISA or financing proposition relied on in the draft or issues memo, using the statute, regulation, or other recognized authority as appropriate.
- Do not state compliance conclusions in bare form without anchoring them to the operative authority or document provision.

## 4. Analytical scaffolds

1. Read the ERISA memo first and extract the exact compliance architecture it requires.
2. Draft the REOC provisions as operating rules, not as background disclosure:
   - define the REOC standard;
   - specify the qualifying-asset test and the measurement basis;
   - identify the initial valuation date;
   - set the annual valuation period;
   - require substantial management rights;
   - require actual exercise of those rights; and
   - provide a remediation path if qualification is threatened.
3. Draft valuation provisions that work for both compliance testing and investor reporting, while preserving the basis distinction between the two.
4. Draft LP ERISA representations, transfer restrictions if needed, and recordkeeping covenants consistent with the source set.
5. Draft subscription-facility mechanics so the capital-call and repayment provisions are internally consistent with the facility terms.
6. Draft economics and fee language consistent with the fee schedule and GP structuring memo, including any affiliate or expense allocations.
7. Compare all source documents for conflicts, omissions, and open choices; do not resolve a conflict silently.
8. When a source document gives an option rather than a mandate, preserve the option in the draft or note the unresolved choice in the issues memo.

## 5. Vertical / structural / temporal relationships

- The ERISA memo governs the compliance architecture; the LPA should operationalize that analysis and not restate it abstractly.
- The fee schedule supplements, but does not replace, the operative economics in the LPA; cross-check every fee reference against the schedule and the GP memo.
- The subscription facility terms should be reflected in the capital-call provisions, default remedies, and any preferred-return language that depends on funding timing.
- If annual valuation, remediation, or notice timing affects multiple sections, draft those references consistently across the agreement.
- Where a provision depends on a later decision by the manager or advisor, make the decision point explicit and tie it to the relevant compliance or closing milestone.

## 6. Output structure conventions

- Produce the LPA draft as the primary deliverable and ensure it contains operative clauses, not a summary of clauses.
- Then produce a separate drafting-issues memo that identifies conflicts, ambiguities, and open items.
- Use conventional transactional headings and subheadings for the agreement; do not mirror any hidden checklist or internal rubric structure.
- In the issues memo, organize items by topic or document source, and for each item state the issue, the source conflict or omission, the practical consequence, and the recommended next step.
- End the issues memo with a concise Recommended Actions section that assigns each action to the relevant role and timing anchor.
- Confirm in drafting workflow that the primary file is complete before finalizing the issues memo.