When you put an interest rate in your contract, you want it enforced in Court should you have to sue on it. There are a few ways to ensure that won’t happen and those include not expressing the interest rate as an annual amount and exceeding the criminal rate of interest.
What is that you ask? Those 2% per month clauses won’t be enforced? No. No they will not. The reason for this is Canada’s Interest Act requires interest be expressed as an annual amount in order to be enforced. The fix is easy enough, you can express it as 24% per year or if you really need to see that monthly rate, 2% per year (24% per year) and you’re fine.
The current criminal rate of interest is an effective annual rate that is more than 35% for most contracts. There are exceptions that permit 48%, however, overall it’s the 35% rate.
Something many people don’t know is that Judges often don’t like enforcing high rates of interest in lawsuits. Fortunately, our firm is very familiar with the Supreme Court of Canada case law that supports contractual rates of interest that don’t violate the criminal rate and succeed frequently on rates as high as 28% per year.
We’re here to help, both with drafting and with enforcing your contractual interest rates, feel free to reach out for more information.
Inga B. Andriessen, Senior Lawyer