The Acceleration Clause in contracts allows the lender to demand immediate repayment of the entire loan amount if the borrower violates specific terms, such as defaulting on payments. It accelerates the repayment schedule, addressing breaches and protecting the lender's interests.
The key elements of an acceleration clause in a commercial contract include:
- Default Trigger: It specifies events, like missed payments, triggering acceleration.
- Demand for Full Payment: It grants the lender the right to demand immediate repayment.
- Notice Requirements: It may include provisions detailing notice periods before acceleration.
- Cure Period: This clause optionally provides a period during which the borrower can remedy the default and avoid acceleration.
Examples of acceleration clause in a commercial contract include:
- In a mortgage, the lender may use an acceleration clause if the borrower defaults on repayments, demanding full payment.
- A loan agreement may include an acceleration clause triggered by the borrower's failure to meet financial covenants or obligations.
- An option-to-purchase agreement may have an acceleration clause if the lessee breaches terms, accelerating the purchase option.
The Acceleration Clause safeguards lenders by accelerating the repayment schedule upon borrower default. With its focus on default triggers, demand for full payment, notice requirements, and potential cure periods, it ensures prompt action in addressing breaches and protects contractual obligations.
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