Legal Definitions - accrual, clause of

A clause of accrual is a specific section within a legal document, such as a contract, will, or agreement, that defines when a right, benefit, or obligation begins to accumulate, become effective, or be fully earned. It specifies the conditions or timeline under which something "builds up" or comes into existence.

Here are some examples:

• Employment Benefits: Imagine a company's employee handbook contains a clause stating that new employees will accrue 8 hours of paid vacation time for each full month of employment, starting from their first day. This means that after one month, an employee has earned 8 hours of vacation, after two months, 16 hours, and so on.

  How it illustrates the term: This is a clause of accrual because it clearly defines the rate and timing at which the employee's right to vacation time accumulates. It specifies that the benefit "builds up" monthly, rather than being granted all at once or at a different interval, establishing when the right to use that time begins to exist.

• Loan Agreements: Consider a student loan agreement that includes a clause stating that interest on the principal amount will begin to accrue six months after the borrower graduates, even if payments are deferred. Before this six-month period, no interest is added to the loan balance.

  How it illustrates the term: This clause of accrual precisely defines the specific point in time when the obligation to pay interest begins to accumulate. It sets the condition (six months post-graduation) for when the financial burden of interest starts to "build up" on the outstanding loan amount.

• Partnership Agreements: In a business partnership agreement, there might be a clause stating that a new partner's share of the company's annual profits will accrue at a rate of 1% for every full year they remain with the firm, up to a maximum of 10%. This means after one year, they earn 1% of profits, after two years, 2%, and so forth.

  How it illustrates the term: This is a clause of accrual because it dictates how the partner's entitlement to a share of the profits accumulates over time based on their tenure. It specifies the rate and conditions under which their financial stake in the company's earnings "builds up" year after year.