China Finance

Aug 31 2017

Acceleration Clause legal definition of Acceleration Clause #severability #clause #insurance


Acceleration Clause

Acceleration Clause

The provision in a credit agreement, such as a mortgage, note, bond, or deed of trust, that allows the lender to require immediate payment of allmoney due if certain conditions occur before the time that payment would otherwise be due.

The agreement may call for acceleration whenever there is a default of any important obligation, such as nonpayment of principal or interest, or the failure to pay insurance premiums.

acceleration clause

n. a provision in a contract or promissory note that if some event (like not making payments on time) occurs then the entire amount is due or other requirements are due now, pronto. This clause is most often found in promissory notes with installment payments for purchase of real property and requires that if the property is sold then the entire amount of the note is due immediately (the so-called “due on sale clause.”) Some states prohibit “due on sale” and always allow the new property owner to assume the debt. (See: acceleration. assumption )

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References in periodicals archive ?

Where there is a subjective acceleration clause and the likelihood of the acceleration of the due date is remote (such as when the lender historically has not accelerated due dates of loans containing similar clauses and the financial condition of the borrower is strong and its prospects are bright), neither current classification nor disclosure is required.

While acceleration clauses provide owners with a leg-up in any lease break negotiation, the advantage is particularly powerful when an owner does not want the tenant to break because the owner can leverage the tenant’s liability to its advantage and demand a cash payment for the tenant’s departure.

79-3 says if a long-term debt agreement does contain a subjective acceleration clause and acceleration of the due date is remote, neither reclassification to current liabilities nor disclosure of the acceleration clause is required.

The Company reached its conclusion based on its consideration of EITF 95-22, “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement,” as well as Statement of Financial Accounting Standards No.

The Company revised the classification of its senior credit facility to current on the Consolidated Balance Sheets due to the existence of a subjective acceleration clause in the credit agreement and the use of current cash receipts to directly reduce the liability.

Cases suggest, however, that an acceleration clause would be enforced if it provided for an offset for the reasonably anticipated revenues from re-letting.

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