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Collateral Assignment of Acquisition Agreements | Practical Law

Collateral Assignment of Acquisition Agreements

Practical law standard document w-006-7145  (approx. 24 pages).

Collateral Assignment Of Lease

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What is a collateral assignment of lease.

A collateral assignment of lease is a legal contract that transfers the rights to rental payments from the asset's owner to a lender to secure funding. In this contract, the lease’s rentals are like a loan from the funder to the lessor and the lease acts as security. Collateral assignment of lease agreements are often used in commercial real estate. In addition to the actual contract, the agreement is often accompanied by a promissory note and a security agreement. Throughout the duration of a collateral assignment of lease agreement, the lessor retains ownership of the leased asset.

Common Sections in Collateral Assignment Of Leases

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

Collateral Assignment Of Lease Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.4 5 dex104.htm COLLATERAL ASSIGNMENT OF LEASES AND RENTS FOR THE LA CIENEGA-LA PROPERTY , Viewed November 9, 2021, View Source on SEC .

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Lawyers with backgrounds working on collateral assignment of leases work with clients to help. Do you need help with a collateral assignment of lease?

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Benjamin W.

I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!

I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.

Attorney Gaudet has worked in the healthcare and property management business sectors for many years. As an attorney, contract drafting, review, and negotiation has always been an area of great focus and interest. Attorney Gaudet currently works in Massachusetts real estate law, business and corporate law, and bankruptcy law.

I am a NY licensed attorney experienced in business contracts, agreements, waivers and more, corporate law, and trademark registration. My office is a sole member Law firm therefore, I Take pride in giving every client my direct attention and focus. I focus on getting the job done fast while maintaining high standards.

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Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

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Best Practices: Review of the Most Commonly Negotiated Points in Landlord Subordination Agreements

• October 2, 2019
• Katherine D. Tohanczyn

Many small businesses that seek financing under the SBA 7(a) Loan Program operate from buildings that are leased from a third-party landlord, which can take the form of stand-alone buildings, shopping centers or commercial office parks. These loans are generally underwritten on a cash-flow basis and the primary (or oftentimes the only) collateral is the tangible, business personal property (e.g., equipment, furniture, and inventory) of the borrower located at the leased property.

Whenever a SBA loan includes the borrower’s tangible personal property as collateral, the SBA requires lenders to obtain a lien subordination agreement prior to closing from landlords and sub-landlords, as applicable, giving the lender, at a minimum, in addition to lien subordination provisions: (i) notice of the borrower’s default under the lease, (ii) an opportunity to cure the default, and (iii) access to the leased premises in order to remove collateral. Further, “[w]hen a substantial portion of the loan proceeds are to be used for leasehold improvements or [ii] a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate,” the SBA also requires lenders to obtain a collateral assignment of the lease.

Ideally, lenders should provide the borrower and landlord with a copy of the lender’s form landlord subordination agreement early on in the closing process to provide adequate time for negotiations prior to closing. Commonly negotiated provisions include (i) notice, (ii) time of lender’s possession, (iii) payment of rent, and (iv) assignment of lease.

Most SBA landlord subordination forms require landlord to provide notice to the lender of the borrower’s default under the lease. This notice is important as borrowers often default under the lease prior to defaulting under the subject SBA loan. While the lender’s loan documents may provide that a lease default constitutes a default under the loan, that does not protect the lender if it does not know of the lease default. As such, the landlord subordination agreement should provide that the landlord may not terminate the lease or remove, sell or otherwise dispose of the borrower’s personal property without first providing the lender notice of the borrower’s default and an opportunity to cure or exercise lender’s rights under the landlord subordination agreement.

Time of Possession

Another frequently negotiated section of any landlord subordination agreement is lender’s right to access and occupy the premises in order to inspect and/or remove collateral.  Lenders generally request 60-90 days to enter and remove the collateral but, in some cases, landlords want the property removed in as little as five days. Lenders should carefully consider the minimum amount of time needed based on the location of the property and type of property to be removed.

While a lender is occupying the property, it is usually requested that the lender pay rent to the landlord. However, it is important for lenders to review the language used by the landlord in reference to the amount of rent owed. In some instances, landlords will request that the lender pay rent due and owing under the lease, which appears reasonable on its face. However, a review of the lease may reveal various types and amount of rent. Additionally, lenders should ensure that they are only obligated to pay rent for the time that the lender is actually in possession of the premises.  The lender should ensure it is agreeable to what rent is being paid and limit, if necessary.

Collateral Assignment of Lease

A collateral assignment of lease provision allows the lender to collaterally assign the lease over to a new borrower who is willing to assume the loan and business operation of an original borrower. Landlords are generally hesitant to agree to allow the lender to choose a new tenant. A landlord may be agreeable to allowing an assignment with the landlord’s prior written approval, which approval is generally subject to a review of the creditworthiness of the new tenant. Ultimately, the collateral assignment means that the lender is assisting the landlord with finding a new tenant to rent the property, which is to the benefit of both the landlord and the lender, assuming that the new tenant also assumes part or all of the loan.

Although landlord subordination agreements are generally one to two pages documents, these documents can be challenging to finalize and often result in lengthy negotiations. It is important that lenders are familiar with the terms of the landlord subordination agreement and understand both the lender’s internal policies and SBA requirements when negotiating with landlords.

For more information on negotiating landlord waivers, please contact the attorneys at Starfield & Smith, P.C. at 215.542.7070 or email us at [email protected].

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• Life Insurance
• Definitions

What Is a Collateral Assignment of Life Insurance?

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

• The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
• The collateral assignment helps you avoid naming a lender as a beneficiary.
• The collateral assignment may be against all or part of the policy's value.
• If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
• Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

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