After acquired clause what it is how it works sample
- Abhilasha Sharma
- Feb 13, 2024
- 2 min read
Updated: Feb 17, 2024
What is an "After-acquired Clause"?
An "after-acquired clause" aka "after-acquired property clause" is a provision often included in security agreements or financing statements related to secured transactions. The purpose of this clause is to extend the security interest of the lender to cover assets that the borrower acquires or obtains after the signing of the agreement. It allows the lender to maintain a security interest not only in the collateral that the borrower currently owns but also in any additional assets acquired in the future.
How an after-acquired clause generally works?
Inclusion in Security Agreement: The after-acquired clause is included as a provision in the security agreement between the borrower (debtor) and the lender (secured party).
Description of Collateral: The security agreement initially describes the collateral that is currently owned by the borrower and serves as security for the loan or credit. This could include existing assets like inventory, equipment, or accounts receivable.
Expansion of Security Interest: The after-acquired clause explicitly states that the lender's security interest extends to any additional collateral or assets acquired by the borrower after the execution of the agreement.
Attachment and Perfection: For the after-acquired clause to be effective, the lender must take steps to attach and perfect the security interest in the newly acquired assets. This typically involves filing a financing statement with the appropriate government authority.
Types of Collateral: The after-acquired clause may cover a broad range of assets, such as inventory, equipment, accounts receivable, proceeds from the sale of collateral, or any other property acquired by the borrower.
Here's a simplified example of an after-acquired clause:
"After-Acquired Property: The security interest granted to the secured party pursuant to this agreement extends to all presently owned and after-acquired property, including, but not limited to, inventory, equipment, accounts receivable, and proceeds."
In this example:
"After-Acquired Property" is the title of the clause.
The clause states that the security interest extends to both presently owned and after-acquired property.
Specific examples of after-acquired property are mentioned.
It's important to note that the after-acquired clause provides the lender with a security interest in assets acquired after the signing of the agreement without requiring the parties to negotiate a new security agreement for each new asset. This flexibility benefits the lender but requires careful consideration by the borrower, as it broadens the scope of assets subject to the security interest.
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