what is an assignment of leases and rents

Assignment Of Leases And Rents

Jump to Section

What is an assignment of leases and rents.

The assignment of leases and rents, also known as the assignment of leases rents and profits, is a legal document that gives a mortgage lender right to any future profits that may come from leases and rents when a property owner defaults on their loan. This document is usually attached to a mortgage loan agreement.

Assignment of leases and rents allows lenders to a degree of financial protection in case a loan default occurs. This document is an agreement made between a borrower and a lender of mortgage loans. It often details an exact amount the lender will be entitled to if a default happens.

Common Sections in Assignments Of Leases And Rents

Below is a list of common sections included in Assignments Of Leases And Rents. These sections are linked to the below sample agreement for you to explore.

Assignment Of Leases And Rents Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.9 10 d368735dex109.htm ASSIGNMENT OF LEASES AND RENTS , Viewed October 4, 2021, View Source on SEC .

Who Helps With Assignments Of Leases And Rents?

Lawyers with backgrounds working on assignments of leases and rents work with clients to help. Do you need help with an assignment of leases and rents?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate assignments of leases and rents. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

Meet some of our Assignment Of Leases And Rents Lawyers

Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administration, and litigation. Terry is a graduate of the Georgetown University Law Center, where he was an Editor of the law review. He is active in a number of economic development, entrepreneurial accelerators, veterans and civic organizations in Florida and New York.

I'm a Washington-licensed lawyer specializing in trademark practice and with an extensive trademark education and academic background. I currently work with domestic and international businesses seeking trademark protection in the U.S. by conducting trademark searches, providing legal advice, submitting USPTO applications, and preparing responses to office actions. I'm passionate about trademark law and always looking forward to helping small and medium businesses promote their value by having a registered federal trademark. If you have questions or concerns about trademark/copyright/IP licensing and require legal advice, feel free to contact me and we can have a first chat.

Anatalia S.

High quality work product at affordable prices.

William L Foster has been practicing law since 2006 as an attorney associate for a large litigation firm in Denver, Colorado. His experience includes drafting business contracts, organizational filings, and settlement agreements.

Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.

Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.

Full-service boutique law firm providing personalized services in business law, trademarks, and real estate closings/title work.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Real Estate lawyers by top cities

• Austin Real Estate Lawyers
• Boston Real Estate Lawyers
• Chicago Real Estate Lawyers
• Dallas Real Estate Lawyers
• Denver Real Estate Lawyers
• Houston Real Estate Lawyers
• Los Angeles Real Estate Lawyers
• New York Real Estate Lawyers
• Phoenix Real Estate Lawyers
• San Diego Real Estate Lawyers
• Tampa Real Estate Lawyers

Assignment Of Leases And Rents lawyers by city

• Austin Assignment Of Leases And Rents Lawyers
• Boston Assignment Of Leases And Rents Lawyers
• Chicago Assignment Of Leases And Rents Lawyers
• Dallas Assignment Of Leases And Rents Lawyers
• Denver Assignment Of Leases And Rents Lawyers
• Houston Assignment Of Leases And Rents Lawyers
• Los Angeles Assignment Of Leases And Rents Lawyers
• New York Assignment Of Leases And Rents Lawyers
• Phoenix Assignment Of Leases And Rents Lawyers
• San Diego Assignment Of Leases And Rents Lawyers
• Tampa Assignment Of Leases And Rents Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Assignment of Rents – What, Why, and How?

Article by:

Madelaine prescott, esq., share this post:.

• November 29, 2023

These days, almost all commercial loans include an Assignment of Rents as part of the Deed of Trust or Mortgage. But what is an Assignment of Rents, why is this such an important tool, and how are they enforced?

An Assignment of Rents (“AOR”) is used to grant the lender on a transaction a security interest in existing and future leases, rents, issues, or profits generated by the secured property, including cash proceeds, in the event a borrower defaults on their loan. The lender can use the AOR to step in and directly collect rental payments made by the tenant. For an AOR to be effective, the lender’s interest must be perfected, which has a few fairly simple requirements. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. Including an AOR in the recorded Deed of Trust or Mortgage is the easiest and most common way to ensure the AOR meets these requirements should it ever need to be utilized.

When a borrower defaults, lenders can take advantage of AORs as an alternative to foreclosure to recoup their investment. With a shorter timeline and significantly lower costs, it is certainly an attractive option for lenders looking to get defaulted borrowers back on track with payments, without the potential of having to take back a property and attempting to either manage it or sell it in hopes of getting your money back out of the property. AORs can be a quick and easy way for the lender to get profits generated by the property with the goal of bringing the borrower out of default. But lenders should carefully monitor how much is owed versus how much has been collected. If the AOR generates enough funds so that the borrower is no longer in default, the lender must stop collecting rents generated by the property.

Enforcement of an AOR can also incentivize borrowers to work with the lender to formulate a plan, as many borrowers rely on rental income to cover expenses related to the property or their businesses. Borrowers are generally more willing to come to the table and negotiate a mutual, amicable resolution with the lender in order to protect their own investment. A word of warning to lenders though: since rental income is frequently used to pay expenses on the property, such as the property manager, maintenance, taxes, and other expenses, the lender needs to ensure they do not unintentionally hurt the value of the property by letting these important expenses fall behind. This may hurt the lender’s investment as well, as the property value could suffer, liens could be placed on the property, or the property may fall into disrepair if not properly maintained. It is also important for lenders to be aware of the statutes surrounding the payment of these expenses when an AOR is being used, as some state’s statutes require the lender to pay certain property expenses out of the collected rents if requested by the borrower.

In addition to being shorter and cheaper than foreclosure, AORs can be much easier to enforce. In California, the enforcement of an AOR is governed by California Civil Code §2938. This statute specifies enforcement methods lenders can use and restrictions on use of these funds by the lender, among other things. Under CA Civil Code §2938(c), there are 4 ways to enforce an AOR:

• The appointment of a receiver;
• Obtaining possession of the rents, issues, profits;
• Delivery to tenant of a written demand for turnover of rents, issues, and profits in the correct form; or
• Delivery to assignor of a written demand for the rents, issues, or profits.

One or more of these methods can be used to enforce an AOR. First, a receiver can be appointed by the court, and granted specific powers related to the AOR such as managing the property and collecting rents. They can have additional powers though; it just depends on what the court orders. This is not the simplest or easiest option as it requires court involvement, but this is used to enforce an AOR, especially when borrowers or tenants are uncooperative. Next is obtaining possession of the rents, issues, profits, which is exactly as it seems; lenders can simply obtain actual possession of these and apply the funds to the loan under their AOR.

The third and fourth options each require delivery of a written demand to certain parties, directing them to pay rent to the lender instead of to the landlord. Once the demand is made, the tenant pays their rent directly to the lender, who then applies the funds to the defaulted loan. These are both great pre-litigation options, with advantages over the first two enforcement methods since actual possession can be difficult to obtain and courts move slowly with high costs to litigate. The written demands require a specific form to follow called the “Demand To Pay Rent to Party Other Than Landlord”, as found at CA Civil Code §2938(k). There are other notice requirements to be followed here, so it is essential to consult with an experienced attorney if you are considering either of these options. California Civil Code §2938 specifically provides that none of the four enforcement methods violate California’s One Action Rule nor the Anti-Deficiency Rule, so lenders can confidently enforce their AORs using the above methods with peace of mind that they are not violating other California laws.

Whether you are looking to originate a new loan, or you are facing a default by your borrower, understanding what an Assignment of Rents is and how it operates can be extremely beneficial. Enforcing an AOR can be an easier option than foreclosure and can help promote a good relationship with your borrower when handled correctly. If you have any questions about AORs, or need further details on how to enforce them, Geraci is here to help.

Navigating the Highs and Lows of Financing in the Cannabis Industry in California

Considering a foray into the (entirely legal) cannabis industry, not as a grower but as a financier? The question arises: if your investment goes up

Cannabis 2024 Outlook – Still Growing Like a Weed

Since our last Cannabis Outlook Article published in April 2023, Cannabis legalization continues to expand and grow like a weed. Cannabis is now legal in

[UPDATE] Loan Modifications in Peril in California (In re: Moon)

Click here to jump to the April 2024 update. Many lenders in our industry are not licensed to lend in California, but instead rely upon

Navigating the Maze of Licensing Rules for Private Lenders: Simplifying Business Purpose Lending Secured by Residential Real Estate

Private lenders provide vital financing options for real estate investors. However, there are numerous myths and misconceptions surrounding the licensing rules for private lenders, specifically

• (949) 379-2600
• 90 Discovery, Irvine, CA 92618

Subscribe to our Newsletters

Receive attorney-authored articles, legislative updates, webinar reminders, magazines, and more straight to your inbox. Choose the newsletters below you’d like to receive.

CONNECT WITH US

• Legal GPS for Business
• All Contracts
• Member-Managed Operating Agreement
• Manager-Managed Operating Agreement
• S Corp LLC Operating Agreement
• Multi-Member LLC Operating Agreement
• Multi-Member LLC Operating Agreement (S Corp)

Demystifying Assignment of Lease: Your Go-To Guide

LegalGPS : July 29, 2023 at 8:17 AM

When you’re talking about property leasing, it’s important to understand that there are a lot of terms and concepts that you may have never heard before. One of them is the assignment of lease, which refers to a situation where a tenant transfers their rights and responsibilities under the lease agreement to another party.

What is an Assignment of Lease, and why is it so crucial?

An Assignment of Lease is a term you may have heard thrown around, especially if you're involved in rental properties. It’s a pretty important document. But what exactly is it? Well, in simple terms, an Assignment of Lease is an agreement where the original tenant of a property transfers their leases and all of its rights and obligations to a new tenant. Now, you might be wondering, "When would this scenario ever occur?"

Let's imagine you're a tenant who signed a three-year lease for an office space. However, two years in, you need to relocate due to unprecedented growth of your business. Instead of breaking the lease, you might choose to assign your lease to another business looking for office space. This means that you, as the original tenant, no longer have any obligations under the lease. The new tenant is now responsible for paying rent and complying with all of the terms of the previously signed agreement.

Now that you understand, let's get into the step-to-step guide on how to create an Assignment of Lease!

Steps to Write an Assignment of Lease

Creating a thorough Assignment of Lease agreement doesn't need to be an overwhelming task. Simply follow these steps to ensure your agreement is both comprehensive and legally binding:

Step 1: Identify the Parties

The information of each party should be included. For the existing tenant (the assignor), make sure to include:

Full legal name or business name

Postal mailing address

Phone number and email address

Do the same for the new tenant (the assignee). Make sure all the information is up-to-date and accurate to avoid any unnecessary confusion or disputes. For example, if the assignor is a business, make sure they have updated their mailing address with the post office to reflect their new building location. If a party has multiple addresses, be sure to list them all.

Step 2: Specify the Lease

This section requires exact information from the original lease agreement, including:

Property address and description

Lease start and end date

A reference to the original lease agreement (for instance, a sentence like "the lease agreement dated...")

Remember to include a copy of the original lease as an attachment to ensure the assignee understands the terms they're adhering to. If not already included in the original lease agreement, be sure to add the following information: Description of rental property, Lease term (how long the lease is good for), Rent amount, and Security deposit amount.

Step 3: Detail the Assignment

State that the assignor is transferring all their interests and obligations in the lease to the assignee. Here, write something like:

"The Assignor hereby assigns, transfers, and conveys to the Assignee all of the Assignor's rights, title, and interest in and to the Lease, together with all the Assignor's obligations, liabilities, and duties under the Lease."

This means that the assignor is transferring all of their interests and obligations in the lease to the assignee. This includes any future rent payments, repairs and maintenance responsibilities, notices of default by either party, and so on.

Step 4: Landlord's Consent

Many leases require the landlord's consent to assign the lease. The assignor should request written consent from the landlord and include a clause like:

"The assignment of the lease is not valid unless and until the landlord provides written consent."

This is followed by a place for the landlord to affirm consent by signing or initialing. This is important because the landlord can elect to withhold consent and the assignment will not be valid. If this is the case, you may need to provide additional consideration for your landlord's assent (for example, an increase in rent).

Step 5: Assignee Acceptance

Include a statement in which the new tenant agrees to the assignment and the terms of the lease. It may look like:

"The Assignee hereby accepts this assignment, assumes all duties and responsibilities under the Lease, and agrees to perform all of the Assignor's obligations under the Lease."

You need to do this because the new tenant needs to have an affirmative acceptance of the assignment in order for it to be valid. This is typically done through a letter from the assignee stating that they agree to perform all of your obligations under the lease.

Step 6: Signature and Date

Every binding legal document needs a date and a signature. Make sure that there is a proper place for the assignor and the assignee to sign and print their names, with a line for the date.

By following these clear, actionable steps, you'll be able to construct an effective Assignment of Lease agreement. Remember, every situation is unique, so adjust the template as necessary, being sure to include all relevant details.

Clear so far? Great! Now, let's focus on the tips to draft a perfect Assignment of Lease.

Tips to Draft a Perfect Assignment of Lease

Accurate Dates: Be sure to include the date when this agreement will take effect. Precision avoids any confusion about durations, when the assignee takes over, or when the assignor's obligations end.

Clear Terms: This document should restate the terms of the original lease. The assignee needs a clear understanding of what they're stepping into. Bit ambiguous? Think of it like this: the assignee should be able to step into the assignor's shoes comfortably.

Specify Rent Terms: Stating the rent amount, due dates, and method of payment in the assignment helps create a record of the agreed-upon rent terms, ensuring no misunderstanding arises in the future.

Specify the Term: The assignment should state how long the new lease lasts. For example, if the original lease is for one year, then the assignee will assume only a one-year term.

Specify Other Conditions: If there are other conditions in place—such as tenant improvements or utility allowances—then specify these too.

An assignment of lease doesn't have to be a formidable task to overcome. With a cautious and considered approach, these documents can be a smooth and seamless part of managing a successful lease transition.

Our contract templates can offer you even more support, empowering you towards crafting an excellent and individualised Assignment of Lease ready for your task. So why not take your next step towards leasing success and check them out today? Click here to get started!

Navigating the assignment of a residential lease

A landlord can assign his leases to a new buyer of his building. Likewise, a tenant may be able to assign his lease if he needs to relocate. Find out how to assign your lease and what you can do to protect yourself when doing so.

by   Ronna L. DeLoe, Esq.

Ronna L. DeLoe is a freelance writer and a published author who has written hundreds of legal articles. She does...

Read more...

Updated on: December 4, 2023 · 3 min read

Assignment of lease by the tenant

Assignment of lease vs. sublease, assignment of lease by the landlord.

As a tenant, you may want to get out of your residential lease without paying the remaining rent. Likewise, if you're a landlord and sell your rental property, the buyer must now collect rent from the tenants, who may have no idea you sold the property. In both situations, assignment of a lease with a release for the tenant and assignment of leases with notice by the landlord accomplish these goals.

If you're the tenant and want to leave before the end of your lease term, you may be able to assign your lease to a third party if the landlord doesn't let you out of the lease. The third party then becomes the new tenant, who is bound by the terms of the original lease and pays rent to the landlord.

Most often, the lease won't permit assignment without the landlord's approval, but leases often state that the landlord cannot unreasonably withhold consent. As long as you produce a tenant who's shown a history of payment under prior leases and has been a model tenant, a landlord should consent to assignment.

The assignment of lease form should include places for the tenant-assignor, the new tenant-assignee, and the landlord to sign. If the master lease allows assignment, then the tenant doesn't need the landlord's permission; the tenant can sign an assignment of lease agreement without the landlord's signature.

If the landlord allows an assignment of the lease, you, as the tenant, also want him to sign a release stating that you're not responsible for the new tenant's failure to pay or for any damage she causes. Without such a release, you may still be liable for both.

When you, as the tenant, assign the lease, you sign an agreement that either reads “Assignment of Lease," “Lease Assumption Agreement," or “Assignment and Assumption Agreement." An assumption of the lease means that the new tenant assumes your obligations, such as paying rent and keeping the apartment in good condition.

An assignment of a lease transfers the tenant's entire rights in the property to a third party. With a sublease, on the other hand, the tenant transfers only a portion of the remaining lease. For example, if the original tenant has six months remaining on his lease and he gives the entire six months to a third party, the tenant is permanently assigning his rights to live on the property to the third party. If, however, the tenant allows that third party to stay at the premises for only three months, and the tenant intends to return after three months, he is subleasing the premises.

A landlord can assign the right to collect rent to someone who has purchased the property. An assignment of lease from the seller to the buyer allows the new landlord to collect rent from any and all current tenants in the building. The language in the landlord's assignment of lease agreement can include assignment of security deposits, if the parties agree to it. An assignment of leases by the landlord to the buyer affords protection to the buyer so he can collect rent.

An assignment of leases by the landlord to the buyer is meaningless if tenants aren't aware the landlord sold the property, which is why it's important for the assignor-landlord to give tenants proper notice. A notice of assignment of lease, which is a form signed by both the assignor-landlord and the assignee, or new landlord, is one way to give notice. Another way is to send a letter on the landlord's letterhead. Either way, the notice must include the new landlord's address and how rent is to be paid.

Both landlords and tenants who become assignors should sign a formal assignment of lease agreement, which an online service provider can prepare for you. If you're the tenant who has assigned your lease, try to get a release or you'll still be liable to the landlord. If you're the landlord, make sure you can count on the new tenant to pay the rent before you release the primary tenant from his obligations under the lease.

You may also like

What does 'inc.' mean in a company name?

'Inc.' in a company name means the business is incorporated, but what does that entail, exactly? Here's everything you need to know about incorporating your business.

October 9, 2023 · 10min read

How to get an LLC and start a limited liability company

Considering an LLC for your business? The application process isn't complicated, but to apply for an LLC, you'll have to do some homework first.

March 21, 2024 · 11min read

What is a power of attorney (POA)? A comprehensive guide

Setting up a power of attorney to make your decisions when you can't is a smart thing to do because you never know when you'll need help from someone you trust.

February 8, 2024 · 15min read

• Estate Planning & Probate

Assignment of Rents & Leases

Assignment of rents and leases in business and real estate transactions.

An “Assignment of Rents and Leases” is a crucial legal instrument that significantly impacts commercial and residential real estate, and mergers and acquisitions of real estate. Having a properly drafted and executed assignment means the rights and assets that are transferred give the new party (the assignee) the right to receive payments.

What is an assignment of rents and leases?

An assignment of rents and leases is a legal agreement in which the individual or company entitled to receive payments transfers that right to another party. Most often, this occurs (1) when a property owner hires a property manager, or (2) in acquisitions, such as a property management company selling their accounts to another property management company or a commercial landlord selling their portfolio to a buyer.

How is an assignment of rents and leases used?

This arrangement is often utilized in business sales, account sales, financing, and investment transactions as a means of securing debt or protecting the interests of the lender or property owner.

In the financing context, an assignment often grants the lender or assignee the authority to collect and apply the rents from the property should the borrower default on their loan; this is important when the borrower collateralizes real estate in order to receive the loan. In a property management context, an assignment often serves to effectively transfer management rights to the new company.

An assignment of rents and leases is probably most commonly used in a commercial real estate context when there is a sale of a commercial property, or in the residential real estate context when there is a change in property managers.

What terms should be included in an assignment of rents and leases?

Certain components should be included in a proper assignment. Here are a few of the foundational terms for an assignment of rents and leases:

• Parties. All parties should be clearly identified and defined. This can include the borrower, lender, assignee, assignor, successor, etc.
• Property description. The real estate parcel(s) involved in the assignment should be described by legal description, street address, and more.
• Lease terms, rents, and disclosures. The actual lease agreements that are being transferred to the new landlord, property manager, lender, etc. should be provided to the assignor/successor, along with an easy-to-read schedule of rents and other crucial details per parcel or premises.
• Rights and obligations. Each party should have their rules, permissions, and contractual rights and obligations outlined in the assignment language. The rights and obligations of each stakeholder will be widely varied based on the needs and financial position of each party, the existing leases being assigned, and the specifics of the subject properties.

Best Commercial Real Estate Attorneys in Oklahoma

It is crucial to engage an attorney with experience in properly negotiating, drafting, and executing assignments of rents and leases. They can guide you through the process, ensuring that the assignment is tailored to your specific needs and complies with all relevant legal requirements. The attorneys of Avenue Legal Group have the experience you need and want in your transaction. Contact our firm to discuss your transaction, assignment of rents and leases, or other real estate documentation.

Looking for local counsel in Oklahoma for your commercial real estate transaction? Our firm frequently works with attorneys, investors, and lenders from outside the state. Contact us by call, text, email, or website submission to discuss your matter.

Other helpful information:

• Commercial Real Estate Transactions in Oklahoma
• Due Diligence in Oklahoma Real Estate Transactions
• Essential Terms for Every Commercial Lease
• Attorney for Real Estate Contract Review
• Estate Planning
• Real Estate and Investing

Have Questions?

.

(888) 578-9673

• What is an assignment of rents?

by Brian D. Moreno, Esq., CCAL | General Real Estate Law , Homeowners Association

With the collection of assessments, community associations are always looking for creative ways to increase the chance of recovery.  One underutilized remedy that may provide associations good results is an assignment of rents.  If an owner-landlord fails to pay HOA assessments but continues to collect rent payments from his or her tenant, the association should consider rent assignment.  There are prejudgment and post-judgment rent assignment remedies that can be pursued with regard to the delinquency.  A post-judgment rent assignment can be pursued by way of a request to the court after a Judgment is entered against the owner-landlord.

A prejudgment rent assignment can be pursued even before filing a lawsuit if executed properly.  In California, Civil Code Section 2938 regulates the formation and enforcement of the assignment of rents and profits generated by a lease agreement relating to real property.  It provides that “[a] written assignment of an interest in leases, rents, issues, or profits of real property made in connection with an obligation secured by real property. . .shall, upon execution and delivery by the assignor, be effective to create a present security interest in existing and future leases, rents, issues, or profits of that real property. . . .”   Once a written assignment of rents is properly authorized and formed, the law creates a security interest (i.e., lien) against the rents and profits paid by a tenant. 

The question then is whether the association’s CC&Rs, by itself, creates an assignment of the right to a tenant’s rent payment in favor of the association.  Indeed, section 2938(b) provides that the assignment of an interest in leases or rent of real property may be recorded in the same manner as any other conveyance of an interest in real property, whether the assignment is in a separate document or part of a mortgage or deed of trust.  Since a homeowners association’s CC&Rs is a recorded document and contains covenants, equitable servitudes, easements, and other property interests against the development, it follows that the assignment of rents relief provided in Section 2938(b) can be extended to community associations provided the CC&Rs contains an appropriate assignment of rents provision.

Section 2938, however, does not clarify whether the CC&Rs document on its own creates a lien and enforceable assignment right.  Moreover, a deed of trust is much different than a set of CC&Rs, in that the deed of trust creates a lien against the trustor’s property upon recordation, while a homeowners association would not have a lien until an owner becomes delinquent with his or her assessments and the association records an assessment lien against the property.  Therefore, depending on the scope of the assignment of rents provision in the CC&Rs, a homeowners association would likely need to record an assessment lien first before pursuing rents from a tenant.  Moreover, even after a lien is recorded, homeowners associations should consider adding a provision in the assessment lien giving notice to the delinquent owner that an assignment right is in effect upon recordation of the assessment lien.  Nevertheless, association Boards should consult with legal counsel to ensure proper compliance with the law.

Once the assignment right becomes enforceable, the next issue is how the Association can and should proceed.  Section 2938(c)(3) allows the association to serve a pre-lawsuit demand (a sample of which is included in the statute) on the tenant(s), demanding that the tenant(s) turn over all rent payments to the association.  This can be a powerful tool for homeowners associations.  Moreover, if the tenant complies, the association will receive substantial monthly payments that can be applied towards the assessment debt, and collecting the funds does not appear to preclude the association from pursuing judicial or non-judicial foreclosure proceedings at a later time.

While homeowner associations have the option of pursuing a lawsuit against the delinquent owner and seeking to collect the rent payments after a judgment has been obtained, there are obvious advantages to enforcing the assignment of rents provision prior to pursuing litigation.  A pre-lawsuit assignment of rents demand may prove to be more effective and cheaper.  Additionally, the tenant affected by the assignment of rents demand may place additional pressures on the delinquent owner/landlord having received such a demand.  Given this, the options available pursuant to Section 2938, including the pre-lawsuit demand for rents, should at least be considered and analyzed before action is taken.

Truly, the initial pre-lawsuit demand for rents may persuade the landlord-owner to resolve the delinquency with the association in the face of the potential disturbance of the landlord-tenant relationship.  Even if the tenant fails to comply with the demand and/or the owner fails to bring the account current, the association could nonetheless pursue foreclosure remedies and/or seek to have a receiver appointed to specifically enforce the assignment of rents provision.

In sum, if a delinquent homeowner is leasing the property to a tenant, the homeowners association should consider making a pre-lawsuit demand for rent payments.  If the association’s CC&Rs does not contain an assignment of rents provision, the board of directors should consider amending the CC&Rs to include an appropriate provision.  Without question, the pre-lawsuit demand for rents could provide an excellent opportunity for recovery of unpaid assessments during these difficult economic times.

Recent Posts

• HOA Recall Elections – Must They Be Held Within 90 Days?
• Judgment Enforcement: What can an association do to collect an old small claims judgment?
• Encroachment Disputes: New considerations based on recent laws

Blog Archives

• Today's news
• Reviews and deals
• Climate change
• 2024 election
• Fall allergies
• Health news
• Mental health
• Sexual health
• Family health
• So mini ways
• Unapologetically
• Buying guides

Entertainment

• How to Watch
• My Portfolio
• Stock Market
• Biden Economy
• EV Deep Dive
• Stocks: Most Actives
• Stocks: Gainers
• Stocks: Losers
• Trending Tickers
• World Indices
• US Treasury Bonds
• Top Mutual Funds
• Highest Open Interest
• Highest Implied Volatility
• Stock Comparison
• Advanced Charts
• Currency Converter
• Investment Ideas
• Research Reports
• Basic Materials
• Communication Services
• Consumer Cyclical
• Consumer Defensive
• Financial Services
• Industrials
• Real Estate
• Mutual Funds
• Credit Cards
• Balance transfer cards
• Cash-back cards
• Rewards cards
• Travel cards
• Personal Loans
• Student Loans
• Car Insurance
• Morning Brief
• Market Domination
• Market Domination Overtime
• Opening Bid
• Stocks in Translation
• Lead This Way
• Good Buy or Goodbye?
• Fantasy football
• Pro Pick 'Em
• College Pick 'Em
• Fantasy baseball
• Fantasy hockey
• Fantasy basketball
• Download the app
• Daily fantasy
• Scores and schedules
• GameChannel
• World Baseball Classic
• Premier League
• CONCACAF League
• Champions League
• Motorsports
• Horse racing
• Newsletters

New on Yahoo

• Privacy Dashboard

Yahoo Finance

Assignment of leases and rents: absolutely collateral.

[caption id="attachment_25168" align="aligncenter" width="616"]

Jeffrey B. Steiner[/caption] Generally speaking, rents comprise the principal income derived from commercial real property ownership prior to the sale of the property. In traditional, non-recourse lending, where the special purpose entity borrower may become insolvent, lenders rely on the rent and related income from the property as security for the loan. One mechanism employed by commercial mortgage lenders to secure their interest in the rental stream is to require in the mortgage document an assignment of leases and rents pursuant to which the borrower ‘presently and absolutely’ assigns to the lender the rents from the real property. In turn, the lender grants the borrower a license, revocable upon an event of default, to collect and use the rents. Lenders have elected to include the language purporting to affect a “present” and “absolute” transfer with the hope of achieving the benefits of an “absolute” assignment of the rents over a “collateral” assignment. If the assignment is deemed to be an “absolute” transfer of legal title of the rents from the borrower to the lender, then such assignment would become enforceable immediately upon an event of default and revocation of borrower’s license to collect and use the rents—meaning, that the lender would have the right and ability to collect the rents directly from the tenants as soon as an event of default has occurred. By contrast, if the assignment is considered “collateral,” the lender runs the risk that, following an event of default and a resulting borrower bankruptcy, the rents will be deemed property of the bankruptcy estate, subject to a bankruptcy plan and protected by the Bankruptcy Code’s automatic stay. Case Law New York case law surrounding the treatment of assignments of leases and rents, whether by “absolute” or “collateral” assignment nominally suggests that judges will give effect to the intended purpose of these assignments, ignoring such “absolute” assignment language and interpreting the assignment as a “collateral” one for the mortgage loan. For this reason, a majority of New York state courts have ruled that lenders cannot create an absolute assignment of leases and rents in a mortgage transaction regardless of the language used. In Dream Team Assocs. v. Broadway City , 2003 N.Y. Slip Op 50894U, 2003 WL 21203342 (N.Y.Civ.Ct. May 7, 2003), for instance, the court addressed the question of whether an assignment of rents constitutes an absolute assignment and ruled that “[u]nder New York law…the language used in the assignment instrument itself is not determinative of what rights are actually transferred.” Relying on the fact that New York is a “lien theory” state rather than a “title theory” state, state courts typically hold that an assignment of leases and rents, regardless of the wording of the provision or form taken, will not be a present assignment when given as security for the loan. It follows then that, if assignments of rents do not serve to transfer immediate title to the rents, they instead transfer equitable title and constitute a pledge of the rents to which the lender cannot become entitled until taking some extra, affirmative enforcement steps. In In re Soho 25 Retail , No. ADV. 11-1286-SHL, 2011 WL 1333084, at *6–8 (Bankr. S.D.N.Y. March 31, 2011), the court sought to summarize certain potential steps to enforcement as follows: “requesting the appointment of a receiver to collect the rents, demanding or taking possession [of the property], commencing foreclosure proceedings, or seeking an order for the sequestration of rents.” These additional, affirmative steps do not seem onerous at first glance. However, as any mortgage lender will attest, the foreclosure process in New York State is slow. Furthermore, mortgage lenders are properly advised to avoid the exercise of any such rights prior to an appointment of a receiver or the consummation of foreclosure for fear of being found to be a mortgagee in possession, which could cause lenders to be deemed to have assumed all of the same duties and liabilities of the owner of the property. The rule was recently restated by the court in Allen v. Echeverria , 11 N.Y.S.3d 170, 173 (N.Y. App. Div. 2015), that is, a mortgagee who takes possession of the property mortgaged as collateral is “bound to employ the same care and supervision over the mortgaged premises that a reasonably prudent owner would exercise in relation to his own property; he is bound to make reasonable and needed repairs, and is responsible for any loss or damage occasioned by his willful default or gross neglect in this regard.” Most commercial mortgage lenders are not in the business of managing properties and do not want to be subject to the liability that could arise during such management, especially when the title to the property remains vested in an adverse party, i.e., its defaulted borrower. In light of the bankruptcy risks and the potential that an assignment of rents will not be deemed an absolute assignment, vigilant lenders will avail themselves of alternative mechanisms to exert control over the rents, namely, (i) cash management arrangements and (ii) guaranties that provide for liability in the event of a misappropriation of the rents. Through “lockbox” arrangements between the lender, the borrower and third-party banks, lenders will control the rents deposited by tenants directly into such lender-controlled clearing accounts. The rents will then be distributed according to the terms agreed upon by the parties at closing or otherwise at the direction of the lender in order to pay debt service and to accumulate reserves for the payment of property taxes and insurance. Borrowers will typically have no right to access these funds and, in all cases following an event of default, the banks will be prohibited from following any instructions received from borrowers. For loans in which lenders perceive greater risk, they can structure cash management to exercise greater control of the rents and to make less funds available to the borrower, decreasing the risk that rents will be misused. Additionally, loan documents always provide that, during an event of default, the rents deposited into the cash management accounts will be deemed to be additional collateral for the loan and may be applied by the lender to pay down the debt in lender’s sole discretion. Lenders may also protect against the misuse of rents by including a carve-out to the non-recourse nature of the mortgage loan in a guaranty executed by a borrower-affiliated person or entity. In such a guaranty, the guarantor will be liable to the lender to the extent of any loss suffered by the lender due to the misapplication or misappropriation of rents by the borrower or its affiliates.

Mortgage lenders should not rely on assignments of leases and rents, whether as a clause in the mortgage or as a separate agreement, to protect their interests in the income from their collateral prior to the appointment of a receiver or the final sale of the property at foreclosure. The enforcement of these agreements may take considerable time and money before the lender even gains a legal right to collect rents. Lenders should account for these risks by taking other legal measures which grant them greater control and actually give them enforceable rights immediately upon default. Jeffrey B. Steiner is a member of DLA Piper. Shane Goodhue, a law clerk (assoc.) at the firm, assisted in the preparation of this article.

Mortgage, Assignment of Leases and Rents, Security Agreement, Financing Statement, and Fixture Filing (Pro-Lender Short Form) | Practical Law

Mortgage, Assignment of Leases and Rents, Security Agreement, Financing Statement, and Fixture Filing (Pro-Lender Short Form)

Practical law standard document 8-560-5825  (approx. 52 pages).

• What is an Assignment of Rents?

WHAT IS AN ASSIGNMENT OF RENTS?

An assignment of rent is a binding contract between a lender and a borrower stipulating that in the event the borrower defaults on the mortgage, the lender will be entitled to collect any rent payments made by a tenant occupying the property. If the lender is aware that the borrower intends to use the mortgaged property as a rental property, the lender may include an assignment of rents clause in the mortgage agreement to further protect its interest. A lender may choose to enter a general assignment of rents or a specific assignment of rents.

In a general assignment of rents, the agreement is binding on all future leases. A specific assignment of rents is only binding on the specific parties listed in the agreement. In the context of a real estate transaction, an assignment of rents, whether general or specific, may be registered on title. An assignment of rent may also be registered under the Personal Property Security Act as a secured interest. An assignment of rents is typically only deleted from the title when the corresponding mortgage is discharged and paid in full.

Contact us if you require legal assistance with your real estate transaction. Our real estate law team has the experience and knowledge to assist you throughout every step of the transaction.

Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here .

Real Estate Law Insights

• Can a Lawyer Represent both the Lender And the Barrower In a the same Transaction?
• Can a Lawyer Represent both the Buyer and the Seller in a Real Estate Transaction?
• Understanding the Difference between Chattels and Fixtures
• Understanding the Difference Between Conditions and Warranties and Representations in Real Estate Transactions
• Understanding Easements, Encroachments, and Rights of Way in Real Estate Transactions
• How is Commission Paid to the Real Estate Agent(s)
• How to Invest in Private Mortgages in the Province of Ontario
• When is HST Payable on the Purchase Price of Real Estate in Ontario?
• Understanding the Difference Between Joint Tenancy and Tenants in Common
• What is a Power of Attorney?
• What is Title Insurance?
• What are the Typical Costs Involved in a Real Estate Transaction
• The Difference Between Variable and Fixed Rate Mortgages
• What is a Lender Fee?
• What is a Broker Fee?
• What are Mortgage Instructions?
• What are Standard Charge Terms?
• What is a CMHC Mortgage?
• What is the Cooling-Off Period for the Purchase of Pre-Construction Condominiums in Ontario?
• What is a Cross-Collateral Mortgage?
• What is a Real Estate Deposit?
• What is a Loan Agreement?
• What is a Mortgage Commitment?
• What is a Mortgage Guarantee?
• What is a Mortgage Investment Corporation?
• What is a Mortgage Term?
• What is a Prepayment Penalty?
• What is a Private Mortgage?
• What is a Property Survey?
• What is a Real Estate Assignment?
• What is a Reverse Mortgage?
• What is a Statement of Adjustments?
• What is a Status Certificate?
• What is a Syndicated Mortgage?
• What is a Title Search?
• What is a Transfer Deed?
• What is a Real Estate Trust Agreement?
• What is an Amortization Period?
• What is an Appraisal?
• What is an Institutional Mortgage?
• What is an Occupancy Closing?
• What is Form 9D?
• What is Form 9E?
• What is Kitec Plumbing?
• What is Land Transfer Tax?
• What is the Role of a Lawyer in a Real Estate Transaction?
• What is the Role of Real Estate Agents in a Real Estate Transaction?