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Business Contracts

  1. Defeasance
  2. Grandfather Clause
  3. Hold Harmless Clause
  4. Voidable Contract
  5. Cooperation Clause
  6. Capital Commitment
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Grandfather Clause: Meaning & Definition

Updated: November 17, 2022

Rules, laws, and regulations are constantly evolving. 

There can be some scenarios where a person or entity is allowed to continue to follow an old law once a new one has been created. This is known as a grandfather clause.

A grandfather clause, also known as a legacy clause, is an exception that permits individuals or organizations to carry on with practices that were authorized prior to the adoption of new rules, laws, or regulations.

Read on as we take a closer look at this legacy clause. 

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    KEY TAKEAWAYS

    • A grandfather clause is a provision that allows entities or individuals to follow old rules.
    • The term comes from the U.S. Civil War era and refers to statutes put in place to repress African American voting rights. 
    • There are three types of legacy clauses – permanent, temporary, or instituted with limits. 

    What Is a Grandfather Clause?

    A grandfather clause is an exemption that allows people or entities to continue with activities or operations. These are things that were approved before new rules, laws, or regulations were put in place. 

    These allowances can be temporary, permanent, or instituted with limits. 

    A grandfather clause is also commonly known as a legacy clause. 

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    Grandfather Clause – History 

    The term grandfather clause refers to a collection of post-Civil War voting restrictions in the South that was racially motivated. Many Southern governments started imposing poll taxes, literacy tests, and property ownership requirements before allowing people to vote. 

    This legislation provided exemptions for anyone whose grandfathers supported the war, letting them evade the new restrictions. Only white persons were able to make use of this grandfather exception because there were almost no African Americans who could vote in these states before the Civil War. The passage of these laws essentially barred the majority of African-American voters from exercising their right to vote.

    In the statutes, any white voter whose grandfather had voted before the end of the Civil War was exempt from taking the tests and paying taxes. Hence the name Grandfather Clause. 

    Legacy Clause – Working Structure

    Legacy clauses may be in effect indefinitely, for a predetermined period of time, or subject to certain restrictions, according to the individual circumstances. Exemptions are typically given for a set amount of time to allow existing firms to make the changes required to comply with new rules and regulations in cases where this clause gives the exempted party a competitive advantage.

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    Legacy Clauses – Types 

    There are three types of legacy clauses:

    • Permanent clauses
    • Temporary clauses
    • Clauses with specific limitations

    Depending on the situation, one of the three clauses can be put in place. In order to avoid unfair competition, clauses with specific restrictions, such as bans on facility expansion, remodeling, or retooling, may also be included. 

    This prevents an industrial facility, for instance, from putting off upgrading to meet modern environmental regulations while still boosting productivity. 

    Legacy Clauses – Examples 

    Consider, for instance, a law mandating the installation of two elevators in all structures of three stories or higher. There might be some structures constructed before the adoption of that law that is structurally unable to comply with this law. As a result, the grandfather clause in the statute can specify that all such buildings finished before a specific year are exempt and need no modifications.

    Summary

    Grandfather clauses allow certain entities or individuals to follow older laws once new ones have been put into place. 

    Whenever this creates a competitive advantage, the clause is usually temporary. But they can also be permanent or have limitations. 

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    FAQS About Grandfather Clause

    Is the Grandfather Clause Illegal?

    The original clause violated voting rights and was shut down. The new meaning of the term is not illegal. 

    Is the Grandfather Clause Still in Effect?

    The original grandfather clause was deemed to be unconstitutional by the Supreme Court in 1915. 

    Why Is It Called the Grandfather Clause?

    The term has expanded past the roots explained earlier. It now mainly refers to the legal exclusions granted on the fact that new business practices are being grandfathered in.

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