Practical Law Glossary Item 1-382-3377 (Approx. 2 pages)
In the case of credit agreements, a clause which operates by automatically defaulting a borrower under Agreement A when it defaults under Agreement B. A cross-default provision effectively gives the lender under Agreement A the benefit of the default provisions in Agreement B. Cross-default provisions therefore have a domino effect.
In contrast to a cross-default, a cross-acceleration clause in Agreement A causes an event of default under Agreement A when the borrower defaults under Agreement B, only if the lender under Agreement B accelerates repayment.
In the commercial context, cross-default is a provision used in complex commercial transactions where an uncured breach under one agreement permits the non-defaulting party to terminate the agreement as well as one or multiple associated agreements. For example, an uncured breach under a local agreement for one region may also constitute an uncured breach under another local agreement for a different region. In situations where a cross-default is not desired, parties may include contract language expressly clarifying that an uncured breach under one agreement does not impact other associated agreements.