Content area
Abstract
The increased costs clause is a risk allocation provision, nothing more. If something happens by way of a change in regulatory requirements affecting lending banks after the date on which a loan agreement is signed that raises the cost to the bank of making or maintaining the loan, the increased costs clause lays this risk at the feet of the borrower. The borrower should prepare emotionally for the presence of an increased costs clause in the loan agreement. Most of the negotiation in this area focuses on the measures that the banks will be obliged to take to mitigate the increased costs if they arise. For example, a bank may be required to transfer the credit to a different lending office of the bank if this would avoid or reduce the amount of the claimed compensation. The borrower may wish to retain the right to prepay the advance of a lender claiming compensation under the clause without triggering the sharing clause of the contract.