Model clause

Late Payment – Green Interest Remedies

Matthew's Clause

Creative interest rate remedies by which payments are made either to a “green” cause or an off-setter.

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Why use this?

Some providers of green finance will offer interest rates and there should be no reason not to reference climate friendly finance providers in boilerplate clauses where this is possible and not contingent on wider deal structuring considerations.

The proposed additions will mean that the parties will have to consider climate change in the wider commercial conversations. This puts environmental and climate change issues front and centre of every business discussion.

This drafting will be particularly relevant where one or both of the parties has a publicly stated net zero target. It will ensure climate is cascaded from the recitals of a contract to the execution block.

How it promotes a net zero future

By directing interest rate remedy payments to either carbon offsets or a beneficiary environmental NGO, the clause will ensure climate change is considered throughout the lifecycle of a contract. In effect, it will help to make climate change a live topic throughout any contract management process.

The clause also:

- Sets the tone so that climate pervades the remedies under a contract.
- Supports climate causes as identified by the parties.

As an additional and indirect impact, referencing climate friendly banks will bring providers of green finance out of niche marketplaces and into the mainstream.

Disclaimer - please read

The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Additional Definitions

Appointed Beneficiary means the beneficiary of the Interest, to be chosen from the Beneficiary List by [Party 1/the non-defaulting party] and nominated in writing by [Party 1/the non-defaulting party].

Beneficiary List means the [ideal position – a list of reputable NGOs supporting environmental improvement in the UK and globally, managed by a reputable independent third party; in the absence of such a list, the parties may wish to choose a shortlist of their preferred charitable partners / NGO beneficiaries].

Carbon Offset Provider means a provider of a quantity of carbon credits or voluntary emission reduction credits (otherwise known as verified emission reductions) through a project that has been verified in accordance with [insert name of voluntary standard] or from a United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism], nominated by [Party 1/the non-defaulting party].


Additional Clauses

1. If [Party 2] fails to make a payment due to [Party 1] OR a party fails to make a payment due to [the OR any] other party] under this agreement by the due date, then[, without limiting [[Party 1] OR the other party]’s remedies under clause [NUMBER] (Termination),] [[Party 2] OR the defaulting party] shall [at the direction of Party 1/the non-defaulting party]:

(a) pay interest at a rate of [  ]% [(per annum)]  to [Party 1/the non-defaulting party] on the overdue sum from the due date until payment of the overdue sum, whether before or after judgment (Interest); or

(b) pay a sum equal to the Interest to:

(i) an Appointed Beneficiary; or

(ii) a Carbon Offset Provider,

one or any of (a) and (b) above, in such proportions as [Party 1/the non-defaulting party] shall specify.

2. Interest under this clause will accrue each day at [ ]% a year above the rate of [green bank] from time to time, but at [ ]% a year for any period when that rate is below 0%.

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