CandleFocus Glossary Editor
A hell or high water contract is an agreement between two parties which stipulates that the obligee will fulfill their end of the contract no matter what the circumstances. These types of contracts shift much of the risk of nonperformance or default from the party receiving the benefit of the contract (the obligor) to the party completing the contract (the obligee). Consequently, the lessor or lender who is entering into such a contract believes that the obligee will remain committed to the terms of the contract and will pay the necessary payments even if the agreement is not beneficial to the obligee.
The concept of a hell or high water contract was developed in the banking sector, when lenders sought to protect themselves by developing contracts that would guarantee payment regardless of any unforeseen circumstances. This means that the borrower of a loan or lessee of a property would be required to pay the obligations even if the property were destroyed or become unusable.
By agreeing to a hell or high water contract, the lessor or lender is entering into a high-risk agreement because they assume that the obligee is willing to undertake a substantial amount of risk, including risk of loss of the financed item and decreased value of the leased property. Because of this, lessors and lenders tend to provide more favorable terms, such as lower interest rates, to obligees willing to sign such contracts.
In some cases, the lender can also require the obligee to provide extra security, such as collateral for the loan, or insurance to protect against any losses due to destruction of the property. This can act as a further incentive for obligees to agree to a hell or high water contract.
Overall, a hell or high water contract can be beneficial for both the obligor and obligee. By agreeing to such a contract, the lessor or lender is guaranteed to receive payment, even if there is a problem with the leased item or loan. And by agreeing to the terms of the contract, the obligee is in a position to receive more favorable terms from the lender or lessor.
The concept of a hell or high water contract was developed in the banking sector, when lenders sought to protect themselves by developing contracts that would guarantee payment regardless of any unforeseen circumstances. This means that the borrower of a loan or lessee of a property would be required to pay the obligations even if the property were destroyed or become unusable.
By agreeing to a hell or high water contract, the lessor or lender is entering into a high-risk agreement because they assume that the obligee is willing to undertake a substantial amount of risk, including risk of loss of the financed item and decreased value of the leased property. Because of this, lessors and lenders tend to provide more favorable terms, such as lower interest rates, to obligees willing to sign such contracts.
In some cases, the lender can also require the obligee to provide extra security, such as collateral for the loan, or insurance to protect against any losses due to destruction of the property. This can act as a further incentive for obligees to agree to a hell or high water contract.
Overall, a hell or high water contract can be beneficial for both the obligor and obligee. By agreeing to such a contract, the lessor or lender is guaranteed to receive payment, even if there is a problem with the leased item or loan. And by agreeing to the terms of the contract, the obligee is in a position to receive more favorable terms from the lender or lessor.