Acceleration clause
An acceleration clause lets a lender demand the whole remaining balance of a loan at once, instead of in monthly payments, if the borrower defaults. It is standard in mortgages, promissory notes and business loans, and it usually comes with a notice and a chance to cure before the lender can use it.
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Sample Acceleration clause clauses
The occurrence of any situation referred to in article 1186 (Acceleration clause) of the Italian Civil Code, to which the Significant Events referred to in article 16 letters e), f), g), h), i) of this Contract shall constitute grounds for activating the acceleration clause by the Borrower.
A. It is expressly agreed that the occurrence of any of the hypotheses provided for by Art. 1186 of the Italian Civil Code shall constitute grounds for activating the acceleration clause to the Borrower’s detriment, without any judicial ruling. Loan acceleration commences if the Borrower applies for admission to pre-bankruptcy procedures or to any procedure, including those of an extra-judicial nature, having similar effects or in any case involving the satisfaction of debts and obligations in general in a manner different from normal ones, including the transfer of assets to creditors.
The Warrants contain a provision that if the Company’s Shares trade at or above CAD$5.00 per Share for 10 consecutive trading days, the Company may, at any time after the expiry of the applicable statutory hold period, accelerate the expiration of the Warrants upon not less than 30 days’ written notice by the Company (the “Acceleration Clause”).
Source
Aterian, Inc. (ATER)The Offer Letter provides that the Award will have a double trigger acceleration clause providing for accelerated vesting in the event of a termination without cause or for good reason within the 90 day period prior to, or 12 months following, a change of control of the Company.
Each Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the date of issue (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
Source
PreTam Holdings Inc.ACCELERATION CLAUSE. The non-timely payment of any corresponding interest installment and any of the capital restitution installments will make the total obligation immediately payable, in principal and interest, which will be considered overdue and will enter to accrue an interest equivalent to the maximum that is allowed to be stipulated in the readjustable money obligations, by way of a penalty clause.
Additionally, the Credit Suisse Credit Facility contains a subjective acceleration clause in the event that the lender determines that a material adverse change has occurred within the business, operations, or financial condition of DIH.
The borrowings under the SNB Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding.
The Warrants are subject to an acceleration clause in the event that the common shares are listed on a recognized stock exchange and trade at a price of CAD$0.30 or greater for 10 consecutive trading days, in which event the Company may notify warrant holders that the Warrants must be exercised within a period of 30 days. The Warrants will automatically expire if the Warrant holders do not exercise them within the accelerated 30-day period. In connection with the Unit Offering, the Company paid cash commissions aggregating $18,367 (CAD$22,397) and issued 149,310 Warrants to registered broker-dealers valued at $48,277. The Warrants are subject to the same terms and conditions as the Warrants purchased by other subscribers in the Unit Offering.
The Bank will have the right to inform the Borrower of its intention to exercise its rights under this article, by means of a communication sent by registered letter with return receipt or by certified email; activating the acceleration clause shall become effective ipso iure, without any judicial ruling, from the date on which the aforementioned communication is received.
Acceleration Premium Calculation. The applicable “Acceleration Premium” shall be an amount calculated as follows: (i) If the date of Acceleration occurs: (A) on or prior to the fourth (4th) Payment Date, the Acceleration Premium shall be an amount equal to 5.00% of the aggregate outstanding principal amount of the Loans subject to the Acceleration; (B) after the fourth (4th) Payment Date and on or prior to the eighth (8th) Payment Date, the Acceleration Premium shall be an amount equal to 4.00% of the aggregate outstanding principal amount of the Loans subject to the Acceleration; (C) after the eighth (8th) Payment Date and on or prior to the twelfth (12th) Payment Date, the Acceleration Premium shall be an amount equal to 3.00% of the aggregate outstanding principal amount of the Loans subject to the Acceleration; (D) after the twelfth (12th) Payment Date and on or prior to the sixteenth (16th) Payment Date, the Acceleration Premium shall be an amount equal to 2.00% of the aggregate outstanding principal amount of the Loans subject to the Acceleration; (E) after the sixteenth (16th) Payment Date and on or prior to the twentieth (20th) Payment Date, the Acceleration Premium shall be an amount equal to 1.00% of the aggregate outstanding principal amount of the Loans subject to the Acceleration; and (F) after the twentieth (20th) Payment Date, the Acceleration Premium shall be an amount equal to 0.00% of the aggregate principal amount of the Loans subject to the Acceleration.
Upon an acceleration of all of the outstanding ETNs pursuant to an Optional Acceleration, the Accelerated Redemption Amount will be equal to the arithmetic average, as determined by the Calculation Agent, of the Closing Indicative Values of such ETNs during the Accelerated Valuation Period.
An Acceleration Event will occur if the Intraday Indicative Value on any Trading Day is equal to or less than 40% of the most recent Rebalanced Indicative Value.
Acceleration Fee: Upon the occurrence of an Automatic Acceleration, an Acceleration Fee equal to the product of (1) 0.05% times (2) the level of the Index used in determining the Index Amount on the Accelerated Valuation Date times (3) the Index Units as of the immediately preceding ETN Business Day will apply.
What is an acceleration clause?
An acceleration clause is a term in a loan agreement that lets the lender demand the entire remaining balance at once if the borrower breaks the agreement. Instead of the agreed monthly payments over 30 years, the whole principal plus interest becomes due immediately.
Acceleration clauses are standard in mortgages, promissory notes and business loans. They give the lender a way out of a loan that has gone wrong, and in a mortgage they are the step that comes before foreclosure.
What triggers an acceleration clause?
The clause lists its own triggers, the events of default. The most common are:
- Missed payments. Often after a set number, or after a payment is a set number of days late.
- Selling or transferring the property without the lender’s consent (the due-on-sale trigger).
- Letting insurance lapse or failing to pay property taxes.
- Bankruptcy or insolvency of the borrower.
- Breaking other loan terms, such as financial covenants in a business loan, or giving false information in the application.
Most clauses are optional: the lender “may” accelerate, it does not have to.
How does an acceleration clause work in a mortgage?
- The borrower defaults, for example by missing payments.
- The lender sends a notice. In the standard Fannie Mae and Freddie Mac mortgage forms, it must name the default, say how to cure it and give at least 30 days to do so.
- The borrower can cure. Paying the missed amounts and costs within the notice period stops acceleration.
- The lender accelerates. If the default is not cured, the full balance becomes due.
- Foreclosure follows if the borrower cannot pay or refinance. The standard forms, and many states, let the borrower reinstate the loan by paying the arrears and costs up to shortly before the foreclosure sale (five days before, in the standard forms).
Acceleration clause vs. due-on-sale clause
A due-on-sale clause (also called an alienation clause) is one type of acceleration clause: its only trigger is a sale or transfer of the property. A general acceleration clause covers any default, mainly missed payments.
| Acceleration clause | Due-on-sale clause | |
|---|---|---|
| Trigger | Any listed default, most often missed payments | Sale or transfer of the property |
| Purpose | Lets the lender exit a loan in default | Stops a buyer from taking over the loan |
| Legal basis (US) | Contract and state foreclosure law | Garn-St Germain Act of 1982, with exceptions such as transfers to a spouse or on death |
Are acceleration clauses legal?
Yes. Courts generally enforce acceleration clauses, as long as the lender follows the contract and any notice rules. Borrowers can push back if the lender skipped a required notice, accepted late payments for months and then accelerated without warning, or used the clause in bad faith.
Acceleration clause example
Sample clause: Acceleration clause
Add this clause to a contract, send it and get it signed in fynk.
Use it in fynk for freeHow to keep track of default and cure deadlines
An acceleration clause only works if the notice and cure deadlines are met. In fynk, the notice period and the events of default are fields in your loan or note template, so every agreement uses the same approved wording. When a notice goes out, a reminder on the cure deadline tells the right person when the lender may accelerate, and AI Review checks a borrower’s draft against your playbook for a missing acceleration right or a cure period that is longer than you allow.
Which contracts contain an acceleration clause?
Mortgages and deeds of trust, promissory notes, business and term loans, car loans, convertible loans, and equipment leases. Commercial leases have a similar term for rent, the acceleration of rent clause. These free templates already include one:
Free templates with this clause
- Master promissory note template On any default, the lender may declare the entire unpaid balance immediately due and payable, even before the maturity date. Use template
- Secured business loan agreement template The maturity date is the earlier of the agreed date or acceleration of the debt after an event of default. Use template
- Convertible loan agreement template The loan becomes immediately due and payable at the lender's option if an event of default occurs, such as non-payment at maturity. Use template
Related clauses
- Cure period A cure period clause provides a specific timeframe within which a party in breach of a contract can rectify or "cure" the breach to avoid further legal consequences, such as termination of the agreement. This clause offers a structured opportunity to remedy non-compliance, thereby maintaining the contractual relationship and reducing potential disputes.
- Cross default A cross default clause is a provision in a loan or credit agreement that triggers a default if the borrower defaults on another obligation, such as a different loan or financial agreement. This clause aims to protect lenders by ensuring they can take action if the borrower is experiencing broader financial difficulties.
- Default interest rate A default interest rate clause stipulates the interest rate that will be applied to overdue payments in a contract. This rate serves as a financial penalty, incentivizing timely payments and compensating the party owed for any delay.
- Double trigger acceleration Double trigger acceleration is a contractual provision commonly found in employee stock or option agreements, which accelerates vesting based on the occurrence of two specific events, typically a change in company control followed by an employee's involuntary termination or departure for 'good reason.' This clause is designed to provide financial security to key employees in the event of company acquisition while also protecting the acquiring company from immediate mass vesting.
Frequently asked questions
The lender. It lets the lender demand the full balance after a default instead of chasing each missed payment, and it opens the way to foreclosure.
Usually yes, by curing the default within the notice period. After acceleration, the standard mortgage forms, and many states, still let the borrower reinstate the loan by paying the arrears and costs up to shortly before the foreclosure sale.
An alienation clause, also called a due-on-sale clause, is a type of acceleration clause triggered only by selling or transferring the property. A general acceleration clause is triggered by defaults such as missed payments.
The clause itself does not. The missed payments that trigger it are reported to credit bureaus, and a foreclosure that follows acceleration does serious damage to a credit score.
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