Clawback Provision

A provision included in certain real estate partnership agreements, whereby a special distribution tier is included in the equity waterfall that allows for the limited partner (LP) to “clawback” cash flow previously distributed to the general partner (GP).

Reasons for including the clawback provision vary, but generally are related to instances where the GP is distributed cash flow before the LP reaches a preferred return hurdle. In the event at the end of the venture the LP has not achieved some preferred return, the GP must give back some or all distributions previously made to the GP until such point that the LP hits its preferred return.