WA Interest on Loan Agreement with Super Fund - Help?

Discussion in 'Commercial Law Forum' started by SkippyUlli, 27 March 2019.

  1. SkippyUlli

    SkippyUlli Member

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    Hi Everyone,

    My partner and I have a Self-managed Super fund (SMSF) and had signed a Loan Agreement with a property investor over a specific amount of money for a property development project for a 12 months term. In regards to the interest, the agreement states "Interest is 15% calculated annually in arrears". Now the project took 4 months longer than the agreed loan term, so 16 months in total, but the Borrowers are now refusing to pay interst for the additional 4 months with the explanation that the agreement states "interest calculated annually".

    They say, only if the agreement would state "interest calculated monthly" we would be entitled to interest for the additional 4 months. I don't believe that and think we are entitled to interest of 15% for 16 months. Can anybody please help me?

    Thanks a lot in advance!
     
  2. Rob Legat - SBPL

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    Assuming the actual terms of the loan contract are fairly usual, there should be clauses dealing with:
    - failure to pay by the due date (i.e. going over the term); and
    - pro rata interest charges for ‘broken periods’.

    What the second point means is that if the interest calculated period is X (in your case a year), and the loan is paid out part way through X, then a proportionate amount of interest is paid calculated to the day of payment,

    It’s the same principle as if the interest was calculated monthly, and the loan was paid out on the 15th of the month instead of at the end of the month.
     
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  3. SkippyUlli

    SkippyUlli Member

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    Hi Rob

    Thanks a lot for your reply.

    Unfortunately there is no clause for pro rata interest charges for ‘broken periods’ in the contract, only a Default clause which states,

    "If the Borrower does not comply with their obligations under any of the Loan Documents" (which I assume would include not to repay loan+interest on or before due date, here 12 months), "we have the rights to by notice to borrower:
    a) make amount owing immediately due and payable" (Which we didn't do after the 12 months)
    "b) exercise our rights under the Security Interest or
    c) exercise any other rights we have under law."

    So I assume without this pro rata clause in the agreement that you mentioned we have no rights to demand interest on the additional 4 months, unless this is a right we have under law?

    Thanks a lot again.
     
  4. Rob Legat - SBPL

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    Without a clear cut clause, you'll need someone to review and consider the full terms of the loan agreement to see whether the excess interest is payable.
     
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  5. SkippyUlli

    SkippyUlli Member

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    Thanks a lot again for your help Rob.
    Best regards,
    Ricky
     
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