Equitable Charging Clause

18 December 2020

Charging clauses are included in many commercial agreements as a form of security to ensure the performance by the parties, of their obligations and to allow a party to register a caveat against any real estate the other party may own.

Particularly trade suppliers and credit providers often include an equitable charging clause in their contractual agreements.

A charging clause essentially enables the supplier to then register a caveat against any real estate the other party may own. A caveat can be used to prevent a person from selling or re-financing the property until the caveat is lifted.

Where you believe you are entering into an agreement that contains a charging clause it is imperative to obtain legal advice. Otherwise, you may end up handing over more than you bargained for to satisfy your debts in the event that you cannot pay them.

Alternatively, for suppliers and credit providers a charging clause can be a powerful tool to ensure that you will be repaid for any credit or goods that you provide. Whilst courts are unlikely to void a charging clause, particularly in commercial transactions, if these clauses are too onerous they may be deemed to be unfair or a penalty.

Consequently, care must be taken when drafting such clauses into your commercial contracts to ensure they are enforceable.

Contact Walker & George to assist you in drafting or negotiating your contracts.