Legal Definitions - acceleration

In legal contexts, acceleration refers to the act of speeding up or bringing forward a future event or obligation. This term applies in several distinct areas of law, primarily concerning financial agreements, property interests, and securities regulations.

• In Loan Agreements:

  When applied to loans, acceleration means that a lender demands immediate payment of the entire outstanding balance of a debt, even if the original repayment schedule had many years remaining. This typically occurs when a borrower fails to meet specific conditions outlined in the loan agreement, such as missing payments, failing to maintain insurance, or violating other contractual terms. An "acceleration clause" in the loan contract gives the lender this right.

  • Example 1 (Mortgage Default):

    A homeowner takes out a 30-year mortgage. After several years, they lose their job and miss three consecutive monthly mortgage payments. The mortgage agreement contains an acceleration clause. The bank sends a notice informing the homeowner that due to the default, the entire remaining balance of the mortgage loan is now due immediately, rather than over the next 27 years.

    How it illustrates acceleration: The bank has "accelerated" the loan's maturity date, making the full debt payable at once instead of according to the original long-term schedule, because the borrower failed to meet their payment obligations.

  • Example 2 (Commercial Loan Covenant Breach):

    A small manufacturing company secures a business loan with a 7-year repayment plan. The loan agreement includes a covenant requiring the company to maintain a certain level of working capital. Due to an unexpected market downturn, the company's working capital falls below the agreed threshold. The bank, exercising its rights under an acceleration clause, declares the entire outstanding loan balance immediately due.

    How it illustrates acceleration: The bank "accelerated" the loan, demanding full repayment ahead of the original 7-year term, because the company breached a financial condition (covenant) in their loan agreement.

• In Property Law:

  In the context of property, acceleration refers to the hastening of an individual's right to possess or enjoy an estate or interest in property. This happens when a preceding interest in the property ends sooner than originally anticipated, causing the subsequent interest to take effect immediately.

  • Example (Life Estate):

    A will specifies that a family farm is to be given to the testator's daughter for her lifetime, and upon her death, it will pass to the testator's grandson. Shortly after the testator's death, the daughter decides she does not want the responsibility of managing the farm and legally disclaims (gives up) her life interest.

    How it illustrates acceleration: Because the daughter's preceding life interest ended prematurely, the grandson's right to full ownership of the farm "accelerates," meaning he gains immediate possession and enjoyment of the property instead of waiting until his mother's death.

• In Securities Law:

  In securities regulation, acceleration refers to the Securities and Exchange Commission's (SEC) decision to expedite the effective date of a company's registration statement. Normally, there is a mandatory 20-day waiting period after a company files its registration statement before it can sell securities to the public. If the SEC grants acceleration, it allows the company to bypass or shorten this waiting period.

  • Example (Initial Public Offering - IPO):

    A rapidly growing software company has filed all necessary documents with the SEC for its Initial Public Offering (IPO). To capitalize on favorable market conditions and investor interest, the company requests the SEC to "accelerate" the effective date of its registration statement, allowing them to begin selling shares to the public sooner than the standard 20-day waiting period.

    How it illustrates acceleration: The SEC, if satisfied with the disclosures, "accelerates" the process, enabling the company to launch its IPO and raise capital from investors more quickly than typically allowed.