A default interest clause specifies that a higher rate of interest will apply if the borrower fails to make payments on time or commits other contractual breaches. This clause is common in UK property development finance agreements and is designed to compensate the lender for increased risk and administrative costs following a default. The default rate is typically a fixed margin above the standard interest rate and may apply until the default is remedied. Its enforceability depends on reasonableness and compliance with UK contract law and consumer credit regulations.
In practice, a default interest clause becomes particularly relevant where a development facility moves into technical or payment default during construction, refinancing delays, or slower than expected sales periods. Lenders rely on these provisions to protect yield and incentivise rapid remediation while preserving the overall enforceability of the finance agreement under Legal Concepts & Obligations. For developers, the commercial impact can be significant because increased interest costs may compound quickly alongside other enforcement expenses, reducing scheme profitability and cash flow flexibility. This is especially important where funding structures already include Accrued Return with Compounding, as the combined effect can materially increase total repayment obligations before practical completion or exit.
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