An assignment is the transfer of some or all of the rights in a contractual arrangement and/or an asset to another party, where the obligors under the arrangement are bound to perform in relation to the assigned rights. A lease assignment is the transfer of a lessor’s beneficial rights in a lease and the leased asset (i.e., monthly lease payments and proceeds from the sale or other disposition of the asset) to a funder in exchange for upfront cash funds, where the obligor under the lease (lessee) is bound to perform in relation to the assigned rights.
A lessor that transfers and assigns some or all of the rights in a lease is the assignor and the funding source to which the rights in the lease have been assigned is the assignee. The obligor under the lease – the lessee – is bound to perform in relation to the assigned rights. A lease assigned by the lessor (assignor) to a funding source (assignee) in exchange for an upfront cash funds is an assigned lease.
| Assignment of Lease Rights |
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A lease assignment agreement documents a contractual arrangement between a lessor and a funding source by which some or all of a lessor’s beneficial rights in a lease – lease payments and proceeds from the disposition of the asset – are transferred by the lessor to the funder in exchange for upfront debt capital. Lease originators and lessors obtain lease funding while reducing their credit exposure by assigning to lease funders ownership or the lease payments and a security interest in leased assets. Lease assignment is a very common funding technique used by leasing companies.
The provisions of an assignment vary according to the nature of the assignment, the relationship between the parties, and the circumstances of the transaction. Lease assignments identify the parties in the assignment, specify the nature of the assigned rights and leased asset, contain lessor representations and warranties, and address the respective rights and obligations of the lessor and assignee. Assignment may take the form of a true sale of leased assets to the funders (outright assignment) or assignment of the rental payments and a security interest in the leased asset in favor of the funders (collateral assignment). As part of a lease assignment, the lessor and the assignee frequently execute a residual sharing agreement, remarketing agreement and servicing agreement.
| Lease Assignments | |
|---|---|
| Type of Assignment | UCC 9 |
| Collateral Assignment | Security in Chattel Paper |
| Outright Assignment | Sale of Chattel Paper |
Although it is customary for the assignee to exercise all rights from the time of assignment, an assignment may arrange for the lessor to collect the lease payments and otherwise administer the lease until lessee default or other triggering event. In this capacity, the lessor acts as the servicer of the assigned lease assets on behalf of the assignees.