Most well-drafted loan agreements will contain miscellaneous contract clauses, usually referred to as boilerplate clauses. Whilst boilerplate clauses are not the key clauses of a contract, they can nevertheless be very important. Each clause is essential to the loan agreement. This article will explore some of the most important boilerplate clauses you will find in a loan agreement.
Set-Off
Many loan agreements include a set-off clause. This enables the lender to set-off any money it owes to the borrower against money the borrower owes the lender.
This clause can reduce the lender’s risk exposure. As a borrower, you want to make sure that the loan agreement makes it clear that the lender can only set-off amounts owing concerning the loan agreement and not in respect of other unrelated transactions.
However, in August 2022, the ACCC reviewed the small business contracts of Fujifilm Australia and found that 38 of their standard terms were unfair. This included their use of a set-off right. The court declared that such a right was void and unenforceable. This meant that it no longer had a legal effect and could not be relied upon by Fujifilm. However, these were commercial contracts in the small business sector. As such, it is unclear how this judgement may affect set-off rights in other contexts, such as the loan agreement. As a borrower, you may want to discuss this in negotiating the loan agreement. Moreover, you may even push for the set-off right to be deleted.
Lender’s Determination and Certificate
A loan agreement will often include a clause stating that a certificate issued by the lender in respect of a matter to be determined under the loan agreement is, in the absence of manifest error, conclusive evidence of that matter. It will also usually state that the lender is not obliged to give any reasons for its determination. The main reason for this clause is to minimise the likelihood of a dispute. Any calculations the lender does will be binding on the borrower. For example, this may include calculations as to the amount of:
- money the lender has lent to the borrower;
- interest the borrower has paid;
- money the borrower has repaid; and
- fees, costs and expenses the borrower has paid.
Equally, if the lender determines that there has been an event of default under the loan agreement, this determination will be binding on the borrower, in the absence of manifest error.
Continue reading this article below the formConsents and Approvals
So, if the loan agreement states that ‘the borrower may, with the prior consent of the lender, enter into another loan agreement with a third party’. Due to this clause, the lender can (in its sole discretion) give or withhold its consent to such. Further, it does not have an obligation to explain why it chooses to do so.
Personal Property Securities Act (PPSA)
It is unlikely that a loan agreement itself will create any PPSA security interests. Therefore, if the loan is unsecured, it may not contain a PPSA clause. However, if the loan is secured, it will likely contain a PPSA clause.
Supervening Legislation
The loan agreement may contain a clause stating that any present or future legislation which operates to:
- lessen or vary in favour of the borrower any of the borrower’s obligations; or
- postpone, stay, suspend or curtail any lenders’ rights, except to the extent that its exclusion is prohibited or rendered ineffective by law.
This is a pro-lender clause and aims to ensure the lender remains in the same position vis-à-vis the borrower throughout the term of the loan, despite any change in legislation.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Amendment
Most contracts will contain an amendment clause. A loan agreement is no different. It will usually state that parties can only amend the agreement through a written agreement that all parties enter into.
Key Takeaways
There are many important clauses in a loan agreement, many of which we have now explored with you. We will look at a few more boilerplate clauses in the final part of this series (Part 10: miscellaneous provisions – Part 2).
If you need assistance with loan agreements, or any other finance law-related matters, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A set-off clause enables the lender to set-off any money it owes to the borrower against any money which the borrower owes to the lender.
Usually, an amendment clause will state that the agreement can only be amended by a written agreement entered into by all the parties to the agreement.
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