Acceleration Clause

Acceleration Clause Defined

Acceleration clauses are contract provisions allowing a financial lender to speed up the repayment of your mortgage if you don’t meet specific conditions. These are known as triggers in real estate offers. A triggering event allows the lender to invoke immediate payoff.

There are several types of acceleration clauses, including installment contract acceleration clauses. Contract lawyers can provide legal advice.

Here is another article about acceleration clauses.

Acceleration Clause Explained

Triggers of acceleration clauses may include:

• Trigger 1: Homeowner’s insurance cancellation
• Trigger 2: Property tax payment delinquency
• Trigger 3: Bankruptcy filings, including Chapter 13
• Trigger 4: Not making loan repayments
• Trigger 5: Illegal property transfers to another party

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Purpose of Acceleration Clause

The purpose of an acceleration clause is to protect the lender from risks associated with a commercial lease or loan. It allows them to hasten the repayment process if a triggering event occurs. Triggering events signal that the debtor may head to financial insolvency.

Learn more about the purpose of an acceleration clause by reviewing this article.

Acceleration Clause Examples

Examples of acceleration clause use include:

• Example 1: Not making interest payments
• Example 2: Not meeting mortgage note payments
• Example 3: Due-on-sale clauses triggers
• Example 4: Breach of contract or debt covenant
• Example 5: Land purchase defaults on a commercial loan

According to their internal policies and within the provisions of state and federal laws, the lender will typically define an acceleration clause.

Acceleration Clause Samples

Sample 1 – From Loan Agreement:

(a) Automatic Termination and Acceleration. Upon the occurrence of any Event of Default in respect of Borrower described in Sections 8.1(d) or 8.1(e), the unpaid principal amount of and any and all accrued interest on the Loan and all other accrued Obligations shall automatically become immediately due and payable.

(b) Elective Termination and Acceleration. Upon the occurrence and during the continuance of any Event of Default (other than an Event of Default described in Sections 8.1(d) or 8.1(e)), Lender may, by written notice to Borrower, (i) declare that the remaining commitments under Section 2.1 are terminated, and/or (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loan and any and all other accrued Obligations to be, and the same shall thereupon be, immediately due and payable, without demand, notice or legal process of any kind.

Reference:

Security Exchange Commission - Edgar Database, EX-10.31 19 dex1031.htm LOAN AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/1471443/000119312511153384/dex1031.htm>.

Sample 2 – From Mortgage Agreement:

(a) Acceleration of Maturity. If an Event of Default shall have occurred, then the entire Indebtedness shall, at the option of Lender, immediately become due and payable without notice or demand, time being of the essence of this Security Instrument, and no omission on the part of Lender to exercise such option when entitled to do so shall be construed as a waiver of such right.

Reference:

Security Exchange Commission - Edgar Database, EX-10.5 6 d406118dex105.htm MORTGAGE AND SECURITY AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/1496454/000119312512381165/d406118dex105.htm >.

Sample 3 – From Loan Agreement:

4.02. Acceleration of Maturity. If an Event of Default shall have occurred, then the entire balance of the indebtedness (including but not limited to the Loan and the Other Indebtedness) secured hereby (or such parts as Lender may elect) with interest accrued thereon (or such parts as Lender may elect) shall, at the option of the Lender, become due and payable without notice or demand, time being of the essence. Any omission on the part of the Lender to exercise such option when entitled to do so shall not be considered as a waiver of such right.

Reference:

Security Exchange Commission - Edgar Database, EX-2 3 ex22.htm LOAN AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/839470/000105291817000593/ex22.htm >.

Sample 4 – From Commercial Loan Agreement:

Acceleration. Lender may make all or any part of the amount owing by the terms of the Loan immediately due. If Borrower is a debtor in a bankruptcy petition or in an application filed under Section 5(a)(3) of the Securities Investor Protection Act, the Loan is automatically accelerated and immediately due and payable without notice or demand upon filing of the petition or application.

Reference:

Security Exchange Commission - Edgar Database, EX-10.38 3 dex1038.htm COMMERCIAL LOAN AGREEMENT, Viewed March 31, 2021, < https://www.sec.gov/Archives/edgar/data/922204/000119312509149119/dex1038.htm>.

Common Contracts with Acceleration Clauses

Common contracts with acceleration clauses include:

• Commercial leases
• Commercial loans
• Residential leases
• Residential mortgage notes
• Installment contracts
• Land purchase agreements

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Acceleration Clause FAQs

Acceleration clauses are complicated. Here are the answers to acceleration clause FAQs:

What triggers an acceleration clause in a loan agreement?

Several things can trigger an acceleration clause in a loan agreement. From canceling insurance policies to illegal property transfers, the trigger event depends on the acceleration clause’s terms and conditions in question.

What are the differences between an acceleration and demand clause?

The difference between an acceleration and demand clause lies within trigger events. Under an acceleration clause, the debtor must commit a triggering event for it to go into effect. A demand clause allows the financial lender to demand repayment at any time for any reason.