Hell or High Water Contract Definition
A hell or high water contract is a non-cancelable agreement by which the lessee is legally obliged until the expiration of the contract, to continue making stipulated installment payments to the lessor, irrespective of any complications they may run into during usage of the leased property or equipment.
A Little More on What is Hell or High Water Contracts
A hell or high water contract ensures that the lessee continues to make payments to the lessor notwithstanding any problems that the lessee might encounter in operating a leased equipment or putting a leased property to gainful use.
Implementation of Hell or High Water Contracts
There are provisions to enforce hell or high water contracts notwithstanding defects in the property or equipment leased out. Equipment malfunction cannot be cited as a reason for non-payment of installments. Often, the lessor is only involved with the fiscal aspects of the project and plays no role in connection with the equipment itself.
There are cases where the lessor does not even come in direct contact with the equipment earmarked for lease. In fact, in many instances, the lessor buys the equipment as requested by the would-be lessee and then hands it over after the signing of the hell or high water contract.
As such, any defects that might affect the equipment after this handover would be deemed as liabilities to be shouldered by the lessee rather than the lessor Issues such as manufacturing defects will have to be settled between the lessee and the manufacturer.
In several instances, lessees have moved court attempting to evade hell or high water contracts or leases by asserting that the lessor or vendor have fraudulently lured them into what they have now come to perceive as a dubious arrangement. Often times, the lessor is accused of inducing the lessee into a hell or high water contract by deliberately misrepresenting facts about the condition of equipment leased.
Hell or high water contracts are most visible during venture finance dealings, takeovers and high-yield bonds and indentures. Hell or high water clauses in takeover deals not only make it mandatory for soon-to-be lessees to facilitate uninterrupted payments but also make it obligatory for them to assume responsibility for any future divestments or lawsuits that might emerge from antitrust laws being sanctioned against the property or equipment. Naturally, in several cases, the existence of such hell or high water clauses in agreements prove to be a formidable deterrent for prospective buyers to opt out of the arrangement.
References for Hell or High Water Clause
Academic Research on Hell or High Water Clause
- Finance Lease Hell or High Water Clause and Third Party Beneficiary Theory in Article 2A of the Uniform Commercial Code, Breslauer, P. (1991). Cornell L. Rev., 77, 318.
- Whither the Hell–or–High–Water Clause? Will This Venerable Leasing Construct Survive the Expanding Use of Managed Solutions Transactions?, Bent, P. (2017). The Journal of Equipment Lease Financing (Online), 35(1), 1.
- Consumer Leases Under Uniform Commercial Code Article 2A, Miller, F. H. (1987). Ala. L. Rev., 39, 957.
- Artide 2A—Leases, Flick, L. F. (1989). The Business Lawyer, 1501-1514.
- Come Hell or High Water or Article 2A: How Legislatures and Practitioners Can Cope with Several Drafting Anomalies in Article 2A of the Uniform Commercial Code, Robins, M. B. (1996). Com. LJ, 101, 357.
- A Review and Analysis of the New Article 2A-Leases Amendment to the UCC and Its Impact on Secured Creditors, Equipment and Finance Lessors, Naples, G. J. (1988). Com. LJ, 93, 342.
- The Uniform Commercial Code Survey: Leases, Graynor, B. A., Davidson, T., Huddleson III, E. E., & Whelan, S. T. (2006). Bus. Law., 62, 1575.
- The Uniform Commercial Code Survey: Leases, Graynor, B. A., Huddleson III, E. E., & Flick, L. F. (2004). Bus. Law, 60, 1659.
- Brothers at Arm’s Length: UCC Article 2A, Captive Finance Companies, and the Close-Connection Doctrine, Smith, M. A. (1999). Brothers at Arm’s Length: UCC Article 2A, Captive Finance Companies, and the Wis. L. Rev., 1051.
- Competition Law in Merger Transactions: Managing and Allocating Risk in the New Normal, Steuer, R., Simala, J., & Roberti, J. (2013). Competition L. Int’l, 9, 31.