Monday, November 7, 2011

Acceleration Clauses in Commercial Leases and New Hampshire Pharmacy Business Loans

By Brad MacLiver
Authorship and profile at Google


A provision of many New Hampshire (NH) pharmacy business loans and commercial leases is an acceleration clause. In the loan/lease agreements, the acceleration clause permits the lender to accelerate their collection of payments contingent on an event occurring. Such events include lack of payments by the borrower, failure to keep the property insured, a failure to pay tax assessments, lack of maintenance on the property, selling the property/asset, etc.

Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without the clause the lender would only be able to foreclose on one missed payment at a time. With the acceleration clause, despite whatever event kicks the clause into gear, the lender can demand immediate and full payment of all remaining balances and fees.

The pharmacy business loan or lease documents provided to the pharmacy owner will describe the rights, conditions, and obligations relevant to the acceleration clause. When the New Hampshire pharmacy owner (the borrower) doesn’t meet their obligations then the loan or lease goes into default. A payment that is even one day late can cause a default. Due to this, pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

Tips:
1. If a pharmacy’s slowing cash flow is going to cause a business loan default, but the NH pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.

2. If a pharmacy can catch up on their payments they can reinstate the business loan before the acceleration starts.

3. States have different rules requiring notification of an acceleration clause being exercised. New Hampshire pharmacy owners should understand the laws in the state where they operate. Lack of knowledge is not an excuse.
                                 
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the New Hampshire pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another pharmacy in New Hampshire.

5. Lenders prefer not to have to go through the foreclosure process, so if your pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

6. There are some pharmacy business loans and commercial leases that require a “personal” guarantee from the business owner, which means that the business owner’s credit and personal assets will become involved in the event of a default. The “corporate” status of the business will prevent the lender from seizing their personal assets.

When considering financing a pharmacy for either acquisition or expansion, understanding of all ascepts of the transaction as well as due diligence should be considered. Taking advantage of the services of a NH pharmacy industry expert to guide a New Hampshire pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

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