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Quiet Enjoyment Letter

Simply Speaking
December 22, 2021

Quiet Enjoyment Letter

What is it and what does it do?

A quiet enjoyment letter, colloquially known as a “QEL” or “LQE” (letter of quiet enjoyment), refers to an agreement between (1) a lender with security over a vessel and (2) that vessel’s charterer, providing the charterer with the legal right to undisturbed use and enjoyment of the vessel. The QEL is an agreement that creates a direct relationship between the lender and the charterer, whereby the lender agrees not to enforce its rights or security interest against the vessel so long as the charterer continues to perform its obligations under the relevant charter.


In consideration of [the charterer] entering into the Charter and certain related agreements, [the mortgagee/lender] hereby irrevocably and unconditionally undertakes to [the charterer] and promises that so long as [the charterer] shall retain any interest in the Charter, [the mortgagee/lender] shall not exercise any rights as mortgagee in relation to the Vessel, including any rights to take possession, or otherwise enforce or seek to enforce such rights as [the mortgagee/lender] has at any time where such action may affect in any manner [the charterer’s] free and uninterrupted use of the Vessel in accordance with the terms of the Charter.

Why is it there?

A QEL serves to create a relationship between the lender and charterer, one which simultaneously allows the charterer to work uninterrupted by lender interference (even if the owner is in default of its obligations toward the lender), and which in turn allows the income earned pursuant to the charter to flow to the vessel’s owner and, after an event of default, to the lender.

Why is it important (or not so important) to a Lender?

QELs are a concession made by the lender in consideration for the charterer permitting an assignment of the underlying charter. Often, an assignment is not be permitted under the terms of the charter, and the lender is not able to take an assignment without the charterer’s consent. If the charter is of a long duration, it can be a valuable source of collateral for the lender. By guaranteeing uninterrupted use of the vessel, the Lender can ensure continued income for the vessel’s owner, which the owner will theoretically use to repay the Lender.

How does it affect a Borrower in practical terms?

QELs help owners (borrowers) by maintaining income streams via the charter, even if they are in default under the loan agreement with the lender. Perhaps more importantly, QELs limit a lender’s remedies and enforcement alternatives if the owner is in default, so long as the charterer continues to perform its own obligations to the owner under the charter.

How is it relevant to shipping?

QELs are a relatively standard feature of ship financing transactions given the high frequency of charter arrangements for vessels being financed. The relationship between a charterer and a lender in a shipping transaction would be tense without a QEL, as the lender could attempt to cease charter operations if the owner defaults, and the charterer would be operating with knowledge that the lender might exercise its option for such cessation.

How is it negotiated?

There is no standard form QEL, so it is often a heavily negotiated document. Even though a QEL ultimately benefits the Lender as it provides for access via the charter to the uninterrupted income streams to the owner, Lenders often use the QEL to secure additional rights. For example, a lender may require a charterer to notify the Lender of an owner’s default under the charter and implement remedy periods prior to the charterer’s ability to terminate the charter due to the default. Lenders may also negotiate for a step-in right, which would allow the lender to “step-in” to the shoes of the owner under the charter, and to (i) receive income directly from the charterer, or (ii) sell the vessel subject to the charter.

Further, often the charterer will want to ensure than any future owner (say, if the mortgage is enforced against the vessel) is a qualified owner, meaning that it has the financial standing and technical expertise to uphold its obligations under the charter. Without such assurance in the QEL, the charterer may not be able to retain the benefit of the charter for which it bargained.

Finally, a QEL can appear in different forms. It may sometimes be styled as a “direct agreement” or “tripartite agreement.” While the name is irrelevant, it is important that the document establish a contractual privity between the charterer and the lender (who wouldn’t otherwise have any contractual link) to determine their relative rights and obligations in relation to the vessel in which they both have a (potentially competing) property interest.


Please contact any member of S&K’s Maritime Practice Team.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


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