So What Exactly is an Acceleration Clause and Why Should It Matter To You?
You want to know whether the contract in front of you contains an acceleration clause. Why? Because an acceleration clause allows a non-breaching party to demand full performance immediately from a breaching party. Acceleration clauses can appear in a variety of contracts. They will either help your position a great deal or hurt you badly depending upon which seat of the transaction table you happen to occupy.
When Should You Include Them in the Contract?
I regularly advise my small business clients to include an acceleration clause in their boilerplate sales contracts if they allow their customers to make installment payments for goods and/or services over a period of time. That way, if a customer fails to make a payment on time, my client can demand full payment immediately under the acceleration clause of the agreement.
If you are a residential or commercial landlord, it is in your best interest to include an acceleration clause in your standard lease template. The acceleration clause will protect you by ensuring you can demand full and immediate payment of rent in the event of early termination. You don't want to be left scrambling if a tenant breaks their lease early, and loss of a security deposit plus a month of rent may not actually be enough to make you whole.
When Should You Strike Them from the Contract Before You Sign?
Watch out for an acceleration clause if you are about to sign up for a software license or other type of subscription agreement (such as a gym membership). Software service providers in particular love them, so there is a pretty good chance they are buried within all that small font boilerplate language that your business signed off on a long time ago. What does that mean for your business? Well, if you are a physician practice looking to switch your billing software vendor, you will want to check your existing vendor agreement to see if early termination (without cause) would trigger an acceleration clause that requires you to immediately pay all fees due for the entire term. If so, get on the phone with your vendor and see what it would take for them to waive it. If you don't have success getting it waived, see if the new company you want to use will offer some sort of discounted initial pricing or other perk to make up for the loss you will incur by switching to them. Don't be afraid to get creative with what you ask for. This may not work, but it is certainly worth the time and trouble of trying. And of course, if you are the tenant rather than the landlord, you want to steer clear of an acceleration clause if at all possible before you sign on the dotted line. Otherwise, you could be obligated to pay rent for the full term of the lease if you break it early.