Acceleration Clauses in Commercial Leases and Pharmacy Business Loans in Vermont

By Brad MacLiver
Authorship and profile at Google


A provision of many VT pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining 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 that are provided to the Vermont pharmacy owner will describe any rights, any conditions, and any obligations relevant to the acceleration clause. When the pharmacy owner, in this case the borrower, is unable to meet their obligations, the loan or lease then goes into default. A payment that is even a single day late is able to cause a default, so VT pharmacy business loans and commercial lease documents should be thoroughly read and completely understood before signing.

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

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

3. States have different rules specifying the requirements of notification when an acceleration clause being exercised. Pharmacy owners should comprehend the laws in their state because lack of knowledge is never 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 Vermont 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.

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

6. Some pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing a Vermont pharmacy for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide a pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

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