DEFINITION of 'Hell or High Water Contract'

A hell or high water contract (also known as a promise-to-pay contract) is a non-cancelable contract whereby the purchaser must make the specified payments to the seller, regardless of any difficulties they may encounter. Hell or high water clauses bind the purchaser or lessee to the terms of the contract until the contract's expiration.

BREAKING DOWN 'Hell or High Water Contract'

Implementation of Hell or High Water Contracts

Hell or high water contracts can be enforced even in instances where there is some fault or defect in the property at the center of the agreement. For example, if a lessee agrees to rent or lease a piece of equipment or machinery under hell or high water terms, they are responsible for those payments regardless if the equipment malfunctions. The vendor or lessor might only handle the financing aspect of the transaction and otherwise hold a passive role regarding the equipment itself.

The lessee in such an agreement usually selects the equipment they wish to procure. The lessor then buys the chosen item that is in turn leased to the customer. A financing agreement with hell or high water language is designed to ensure that the lessee will pay the lessor under no uncertain terms.

If there is an issue with the equipment the lessee receives, the lessor typically is not at fault because the lessee chose the equipment they wanted to rent. The equipment may be shipped directly from the manufacturer or supplier to the lessee without the lessor ever coming into contact with it. Flaws in the equipment may be because of an issue with its manufacturing. Any warranties regarding the functionality of the equipment might fall to the supplier or manufacturer to fulfill.

There have been cases where lessees have tried to circumvent hell or high water contracts in court by claiming fraudulent inducement on the part of the lessor or vendor. Such assertions might claim the vendor intended to trick the lessee into the contract by having foreknowledge of equipment flaws and not revealing them. The accusations might focus on the actions of the employees of the supplier and how they addressed the financing contract.

Hell or high water contracts can come into play with project finance transactions, acquisition deals and high-yield indentures. For example, an acquisition deal with hell or high water language can direct the prospective buyer in the agreement to shoulder the burden of addressing any necessary divestitures or litigation that might result from antitrust regulatory issues. The viability of the acquisition agreement could be tied directly to the buyer's ability to resolve such matters and clear the way for the deal to proceed.

RELATED TERMS
  1. Lessor

    A lessor is the owner of an asset that is leased under an agreement ...
  2. Land Lease Option

    A land lease option is right but not obligation for a renter ...
  3. Acquisition Fee

    A lessor charges an acquisition fee to cover the expenses they ...
  4. Closed-End Lease

    A closed-end lease is a type of rental agreement that does not ...
  5. Bargain Purchase Option

    A bargain purchase option in a lease agreement allows the lessee ...
  6. Percentage Lease

    A percentage lease is a lease where the tenant pays a base rent ...
Related Articles
  1. Investing

    Opportunities In The Emerging Market's Water Crisis

    Water scarcity and increasing demand caused by population growth is one of the most compelling long-term portfolio themes.
  2. Investing

    Top 3 ETFs for Investing in Water in 2018

    It may be time to look at a scarce commodity that isn't getting the investor attention it deserves.
  3. Investing

    Water-Related Investments Are Making A Splash

    There’s no doubt about it. The world is facing a water crisis. However, for forward thinking investors, that could mean a huge opportunity.
  4. Investing

    With Fracking It’s All About Water Management

    It takes an awfully large amount of water to frack an oil and gas well these days. Given the growth projections for production activity in the U.S. and Canada, water management could be one of ...
  5. Investing

    A Powerful Triple Play In Irrigation

    Water use for agriculture continues to rise at extreme levels, but which companies are the top plays for this trend?
  6. Investing

    WaterSense: Saving Water And Money

    With a few simple updates, you could be saving on your annual water expenses.
  7. Investing

    Quenching A Thirst With Desalination Plays

    As our planet's population continues to expand at its rapid pace, more pressure is being placed on our water resources.
  8. Investing

    Is United Utilities Environmentally Friendly?

    United Utilities, the largest publicly-traded water company in the U.K., is still working to meet its own environmental goals.
  9. Investing

    CFWAX: Introducing Calvert Investment's Global Water Fund

    Discover how the Calvert Global Water Fund Class A shares are outperforming the markets in 2016 and learn which stocks may be the right fit for your portfolio.
RELATED FAQS
  1. What does it mean to be "above water"?

    The term "above water" is used to describe any situation in which the ending or current value of a subject is higher than ... Read Answer >>
  2. What are the financial benefits of hire purchases?

    Discover more about a hire purchase plan, and learn some of the specific financial benefits for a company using this plan. Read Answer >>
  3. What do the SP-500, Dow and Nasdaq futures contracts represent?

    A futures contract represents a legally binding agreement to pay or receive the difference between the current price and ... Read Answer >>
Trading Center