The equitable charging clause - a powerful tool in commercial transactions

Parties to a commercial transaction, 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 have the practical implication of preventing 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 moneys 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 inserting such clauses into your commercial contracts to ensure they are enforceable.

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice.