A loan provision letting the lender accelerate the debt if the property or a controlling interest in the borrower is transferred without consent.
The longer version
The clause exists because the lender underwrote a specific sponsor and a specific ownership structure. Modern drafting reaches beyond an outright sale to cover changes in the equity above the borrower, which is why transfers inside a fund or a family estate plan can trigger it unintentionally.
Most loan documents carve out permitted transfers: interests below a stated percentage, transfers among existing principals, or estate planning moves, often subject to notice and to control remaining with the original sponsor. Confirming those carve-outs before a restructuring is far cheaper than asking for a waiver afterwards.
Common questions
- Does a due-on-sale clause cover indirect transfers?
- Usually yes. Commercial drafting typically reaches transfers of direct and indirect equity interests in the borrower, not only a sale of the property.
- What are permitted transfers?
- Exceptions written into the documents, commonly transfers below a percentage threshold, transfers among existing principals or to family for estate planning, subject to notice and to control staying with the sponsor.
- What happens if a transfer breaches the clause?
- It is an event of default and the lender may accelerate. In practice lenders often negotiate a consent and an assumption or a fee instead, but the leverage sits with the lender.