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ARTICLE · 28 MARCH 2018

Drafting Interest Rate Calculation Provisions In Corporate Finance Transactions

McCarthy Tétrault
McCarthy Tétrault
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On financing transactions that involve the calculation of interest, lenders and bondholders have typically included a provision (or, more usually, a formula) for calculating a "nominal" annual rate ...

CanadaFinance and Banking
Gordon D. Baird
Gordon D. Baird
Michel Deschamps
Michel Deschamps
Paul Galbraith
Paul Galbraith
Geoff Hall
Geoff Hall
Richard Higa
Richard Higa
Justin Lapedus
Justin Lapedus
D.J. Lynde
D.J. Lynde
Lynn Parsons
Lynn Parsons
Barry Ryan
Barry Ryan
+1 more
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I.  How to Comply with Section 4 of the Interest Act: Settled law and practice?

On financing transactions that involve the calculation of interest, lenders and bondholders have typically included a provision (or, more usually, a formula) for calculating a "nominal" annual rate of interest in order to comply with section 4 of the Interest Act (Canada).1 If a loan document does not comply with this provision, then the interest rate is capped at 5% per annum. Commercial practice and appellate jurisprudence had confirmed that such provisions complied with section 4. Section 4 states:

Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable,

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