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What "in lieu of" means

The expression “in lieu of” means “in place of” or “instead of”, and is encountered in some common legal terms in the UK and the US. Understanding the term can help to clarify the meaning of the relevant law. Learn more in this article.

Payment in lieu of notice

The expression “in lieu of” is found in UK law and a well-known use of this legal expression is in the term "payment in lieu of notice". This is a payment made by an employer to an employee who is leaving and would otherwise need to serve out a notice period as stipulated in the contract of employment. UK tax law provides for a £30,000 exemption for a payment in connection with the cessation of employment or duties, as opposed to a payment for services performed. The tax treatment of a payment in lieu of notice may depend on whether the payment was contractually provided for as a substitute for earnings, or was in the nature of a redundancy payment. To ensure that the first £30,000 of a payment in lieu of notice is not taxable, the employer should clarify in writing that this is an ex gratia payment on the redundancy of the employee, and should ensure that the payment is not provided for in the employment contract as remuneration for services rendered to the employer.

Deed in lieu of foreclosure

In the US, a deed in lieu of foreclosure is a legal agreement whereby a mortgagor contracts with a mortgagee for the transfer of real estate that is subject to mortgage so as to prevent foreclosure from taking place. This has the advantage for the mortgagor (the borrower) that his credit record is not damaged as much as in a foreclosure. It may be possible for the borrower to obtain more favourable terms from a deed in lieu of foreclosure as compared to an actual foreclosure. For the mortgagee, this being the lender which is normally a financial institution, the deed in lieu of foreclosure has the advantage that the costs associated with foreclosure are avoided. The matter may be settled in less time than would be taken by proceeding with a foreclosure. There is also normally less ill feeling between the parties and a lower risk of damage to the property.

Days in lieu

Another use of the term is to describe a "day in lieu", meaning an extra day of holiday taken as a result of overtime worked. The overtime is compensated by an additional day of holiday rather than overtime pay and the expression “in lieu of” refers to the fact that the extra holiday is given in place of the free time given up when working overtime.

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