In the last article in this series, we looked at some of the important boilerplate clauses found in loan agreements. Below we discuss a few more of these.
Most contracts will contain a notices clause. This will set out:
- the contact details of each party (e.g. name, address, email address and/or fax number). Usually parties can change their notice details by written notice to the other party;
- the form a notice must take (e.g. what language it must be in and whether it must be written);
- how the notice must be delivered to the other party (e.g. by hand, by mail, by fax and/or by email); and
- when the notice will be deemed received by the other party (e.g when left at their address, 3 Business Days after posting and/or when the sender receives a successful delivery report from the recipient’s fax machine/email system, unless such report is received after 5 pm in which case the notice will be deemed received on the following Business Day).
The notices clause is extremely important. When a party has to send a notice under the loan agreement (for example, if the borrower has to notify the lender that a representation is incorrect) then, if the notice is not issued in accordance with the notices clause, it will be deemed not to have been given. This could have serious consequences and may even lead to a party being in default (most likely the borrower).
Most loan agreements will state that the borrower cannot assign or otherwise dispose of its right under the loan agreement without the prior written consent of the lender. It may be however that the borrower is allowed to assign its rights to certain pre-approved persons (e.g. members of its group). Generally the lender’s rights under the loan agreement are freely assignable.
Waiver or variation of rights
A well-drafted loan agreement will contain a clause stating that lender’s rights under the loan agreement and a breach of an obligation of the borrower can only be waived by an instrument duly executed by the lender. The loan agreement should make it clear that no other act, omission or delay of the lender will constitute a waiver binding on the lender. Furthermore, a single or partial exercise or waiver by the lender of a right relating to the borrower should not prevent any other exercise of that right or the exercise of any other right.
Accordingly, if the lender decides to waive one of the conditions precedent to advancing money to the borrower under the loan agreement, it must sign a written waiver stating such. This will not prevent the lender exercising any other rights it has against the borrower.
Powers, rights and remedies
A well-drafted loan agreement should contain a clause which states that the powers, rights and/or remedies of a party under the loan agreement are cumulative and are in addition to any other powers, rights and remedies of that party. Nothing in the loan agreement should merge, extinguish, postpone, lessen or otherwise prejudicially affect any power, right, or remedy that a party may have at any time against the other party to the loan agreement or any other person.
Most loan agreements will contain a further assurance clause. This will oblige the borrower to do all things reasonably required of it by the lender to give effect to the loan agreement. It is generally aimed at making sure the borrower does everything required to make sure an agreement is properly stamped and/or registered (if required).
A counterparts clause enables an agreement to be executed in a number of counterparts (rather than all parties having to sign the same copy of the agreement, which might not be very convenient particularly if the parties live interstate or overseas and time is of the essence). All counterparts taken together will constitute one and the same agreement.
Generally a contract will contain an entire agreement clause which will state that the agreement contains the entire agreement between the parties in respect of this particular transaction and that any previous communications etc. are overridden by this agreement.
Governing law and jurisdiction
All contracts should contain a governing law clause. This sets out which laws are to govern the contract. The contract should also state which court’s jurisdiction the parties submit to. In a loan agreement, all parties usually submit to the jurisdiction of the courts of the state where the lender resides. This is so that, if the lender does need to bring a claim against the borrower, it can do so in its local courts. Sometimes, the lender might request that the borrower submits to the non-exclusive (rather than exclusive) jurisdiction of its local courts. This gives the lender flexibility to bring a claim in another court if it chooses.
The execution clause is perhaps one of the most important clauses in a contract. If a party does not execute the agreement correctly then arguably the contract is not valid and enforceable. Accordingly you must make sure that all parties execute the contract correctly. For more information on this, please contact us on 1300 544 755 and one of our contract law specialists will be delighted to assist.
It should also be noted that the date of the loan agreement should be the date that it is executed by the last party.
There are many important clauses in a loan agreement, which we have now explored with you in this series of articles.
To find out more about loan agreements, or for any other finance law related matters, please contact us on 1300 544 755. One of our finance law specialists would be delighted to assist!