This document is an annual renewal clause. It is designed to be inserted into a loan agreement. The defined terms in this clause have the same meaning as those in the precedent called “Basic loan agreement”.

Annual renewal

It is generally uncommon to find an annual renewal clause in a loan agreement but occasionally this occurs where there are revolving credit arrangements built into the loan agreement, that is where funds are made available to the borrower and the borrower only uses the funds when needed.

Borrowers usually need revolving credit for operating purposes where the need for credit may fluctuate depending on the borrower’s cash flow.

This precedent sets out a simple annual renewal clause. The drafter should consider that renewing an agreement, as opposed to simply extending the term of the agreement, may imply that the parties might have the right to renegotiate the terms of the initial agreement.

It is, therefore, important to consider whether:

• the parties have the right to negotiate new terms of the loan agreement each time the agreement is automatically renewed; or
• the terms and conditions remain unchanged.

The agreement should expressly state the potential to, or prohibition against, negotiating new terms on renewal of the agreement.

Related precedents

• Basic loan agreement
• Guarantee of payment of loan
• General security deed
• Amendment and restatement agreement
• Real property mortgage
• Deed of priority
• Forbearance of debt agreement
• Deed of assignment of debt
• Loan agreement checklist

This document has been authored for LexisNexis by Elise Margow, Principal, Legally Speaking.

This document is prepared with the assistance of Specialist Editors Geoff Geha, Partner, Clayton Utz and Karen Lee, Principal and Consultant, Legal Know-How.