how a contract provision works
contract provisions can be found in a country s laws in loan documents and in contract agreements they also can be found in the fine print accompanying purchases of some stocks for example an anti greenmail provision is a type of contract provision that is contained in some companies charters that prevents the board of directors from paying a premium to a corporate raider to drop a hostile takeover bid in loan documents a loan loss provision is a type of contract provision that details an expense set aside to allow for uncollected loans or loan payments this provision is used to cover a number of factors associated with potential loan losses special considerationsmany laws are written with a sunset provision that automatically repeals them on a specific date unless legislators reenact them a sunset provision provides for a repeal of the entire law or sections of the law once a specific date is reached sunset clauses can help the general public in a few ways what may be the most common is when a government body writes a provision into law that benefits the public during a certain period of time usually during a period of specific party power when the power dynamic shifts the clause may not be in the best interest of the public anymore and will be triggered and may free the public from unwanted repercussions from a power shift such as a tax increase or regulation for example the national security agency s nsa authority to collect bulk telephone metadata under the usa patriot act expired at midnight on june 1 2015 any investigations started before the sunset date was allowed to be completed many sunsetted portions of the patriot act were extended through 2019 with the usa freedom act however the provision allowing the collection of massive phone data by government agencies was replaced with a new provision that this data must be held by phone providers this practice of sunsetting has its parallel in business for example a sunset provision in an insurance policy limits a claimant s time to submit a claim for a covered risk if the claimant does not act within the defined period the right to make the claim is forfeited example of a contract provisionone of the most familiar uses of a contract provision is a bond s call provision a bond s call provision refers to a specific date after this date the company may recall and retire the bond the bond investor can turn it in for payment of the face amount or the face amount plus a premium for example a 12 year bond issue can be called after five years that first five year period has a hard call protection investors are guaranteed to earn interest until at least the first call date when an investor buys a bond the broker typically provides the yield to call as well as the yield to maturity these two yields show the bond s investment potential if a bond has a soft call provision the procedure will go into effect after the hard call provision period passes soft call protection is typically a premium to face value that the issuer pays for calling the bond before maturity for example after the call date is reached the issuer might pay a 3 premium for calling the bonds for the next year a 2 premium the following year and a 1 premium for calling the bonds more than two years after the hard call expires 