Wragge Lawrence Graham & Co

UK 200 2014 position: 28

Is a facility fee for a loan a penalty?

In Aodhcon LLP v Bridgeco Ltd the claimant entered into a bridging loan with the defendant in relation to its property development business. When the term of the bridging loan expired, the property had to be sold by the defendant as mortgagee in possession.

The claimant issued proceedings claiming, among other things, that the facility fee for arranging the loan was a penalty. The relevant provision of the offer provided that a facility fee of 1.25 per cent per month calculated on the balance outstanding as at each month anniversary of the drawdown would be debited from the account and would be payable on redemption. However, it further provided that the defendant would waive its rights to collect the facility fee if there were no arrears of interest or any other breaches of the terms and conditions of the offer, including the claimant’s failure to repay the loan at the end of the term…

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