An acceleration clause is a contract in a loan agreement that requires borrowers to repay the full principal if they violate a contract or do not meet certain requirements set by the lender. Acceleration clauses are most common in the real estate sector, where they protect the lender when the borrower becomes insolvent in the event of interest payments or other debt pacts. The number of unauthorized payments or commitments is set in the loan agreement during negotiations. If a party to a legal contract does not fulfil any aspect of that agreement, the result is characterized as an infringement. When a party violates a loan contract, the consequences for both parties. If the borrower violates the restrictions, the lender can trigger an expedited clause and demand full repayment. For more information on the types of bonds, see the CfI article on Debt Covenants.Debt Covenants are restrictions that lenders (creditors, debtors, investors) put on credit contracts to limit the borrower`s shares (debtor). However, from the borrower`s perspective, the uncertainty of an essential amending provision can be problematic and, although it is rarely used by the lender to proclaim a late payment event, there are instances where such provisions have been used to freeze facilities. At least it can give the lender leverage (z.B to impose difficult activity or higher prices) in negotiations with a borrower who is in a difficult situation.
In general, a borrower should ensure that any essential provision on adverse changes (i) is not due to a deterioration in the status of individual companies, but only to a deterioration in the state of the group as a whole, and (ii) is limited to something that significantly affects the borrower`s ability to meet its payment obligations under the loan agreement. The default clause defines the events or circumstances that give the lender the right to expedite the repayment of the loan (i.e. to declare the loan due and payable before the expected repayment date), to cancel all other credit rates due under the loan agreement and/or to immediately declare the loan due and payable. In addition, the lender has the right to enforce any guarantee. These are clearly draconal powers that should only be exercised during a default and should cease as soon as the default has been corrected or cancelled. Prepayment fees, extension fees and double interest rules in loan contracts are not contrary to English law.