Legal Definitions - carrying charge

Carrying charge refers to the ongoing costs associated with maintaining an asset or managing a debt. This term can encompass two primary types of expenses:

• Costs incurred for maintaining ownership of property, such as taxes, insurance, and upkeep.
• Fees, beyond the principal and interest, paid to a lender for managing an installment loan or credit account.

Here are some examples to illustrate the concept:

• Imagine a couple who owns a vacation condominium that they use only a few weeks out of the year. Even when they are not staying there, they still incur carrying charges such as monthly homeowner association (HOA) fees, property taxes, utilities (even minimum service charges), and insurance premiums. These are the recurring expenses necessary to maintain their ownership and the property's readiness, regardless of active use.

• Consider a small business that takes out a loan to finance the purchase of new manufacturing equipment. The loan agreement specifies an interest rate on the principal amount, but it also includes a separate monthly "loan servicing fee." This monthly fee is a carrying charge because it's an additional cost paid to the lender for managing the installment credit, distinct from the interest paid on the borrowed capital.

• Think about an investor who buys a vacant parcel of land with plans to develop it in the future. While the land sits undeveloped, the investor must pay annual property taxes, maintain liability insurance on the property, and periodically clear brush or weeds to comply with local ordinances and prevent fire hazards. These ongoing expenses are all carrying charges, essential for the continued legal ownership and maintenance of the land before it generates any income.