Most well-drafted loan agreements will contain some miscellaneous contract clauses which are usually referred to as boilerplate clauses. Whilst boilerplate clauses are not the key clauses of a contract, they can nevertheless be very important. Some of the most important boilerplate clauses found in a loan agreement are explained in more detail below.
Many loan agreements include a set-off clause. This will enable the lender to set-off any money it owes to the borrower against any money which the borrower owes to the lender. This means that, if the lender is supposed to make an advance to the borrower of $1000 but the borrower owes the lender an amount of $500 (for example for costs and expenses), the lender will only have to pay the borrower $500. 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 in relation to the loan agreement and not in respect of other unrelated transactions.
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 done by the lender (for example, as to the amount of money it has lent to the borrower; the amount of interest the borrower has paid; the amount of money the borrower has repaid; and the amount of fees and costs and expenses the borrower has paid) will be binding on the borrower. 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.
Consents and approvals
The loan agreement may contain a clause stating that the lender may conditionally or unconditionally give or withhold any consent or approval in relation to any matter in the loan agreement and is not obliged to give reasons for doing so. 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’ then, due to this clause, the lender can (in its sole discretion) give or withhold its consent to such and is not obliged to explain why it has chosen 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 is likely to contain a PPSA clause. This will state that the borrower must register, or provide all requisite information to enable the lender to register, any PPSA security interest created in favour of the lender (for example under any associated security documents). The parties may also agree to contract out of certain provisions of the PPSA (for example the provisions which oblige the lender to notify the borrower of any registrations it makes against the borrower). For more information on the PPSA and whether your contracts create PPSA security interests which should be perfected, please call us on 1300 544 755 and one of our PPSA experts will be able to assist.
The loan agreement may contain a clause stating that any present or future legislation which operates to (a) lessen or vary in favour of the borrower any of the borrower’s obligations or (b) to postpone, stay, suspend or curtail any rights of the lenders is excluded, except to the extent that its exclusion is prohibited or rendered ineffective by law. This is a pro-lender clause aimed at making sure the lender remains in the same position vis-à-vis the borrower throughout the term of the loan, despite any change in legislation.
Most contracts will contain an amendment clause. A loan agreement is no different. It will usually state that the agreement can only be amended by written agreement entered into by all the parties to the agreement.
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).
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!