Taking Assignments of Equipment Leases: An Analysis of an Acceptable Documentation Package

It should also be noted that the importance of much of the documentation discussed below depends on multiple factors such as: (a) whether the Funder is looking to the equipment as collateral, (b) whether a guarantor is a key element of the credit decision; and (c) whether the Originator is established and the extent of its credit worthiness.

Finally, the importance of various documents to each Funder depends on pricing and competitive forces and the Funder's own experience, preferences and intentions. If the lease may be assigned to another Funder, or the portfolio (or company) is being readied for sale, a more conservative approach is advised. That being said, we offer the following list of documents and our observations on their importance to Funders.

The Underlying Lease Documents

1) Master Lease (if applicable)

MUST HAVE: Original of Master Lease or a copy (certified as true and correct by Originator).

Whenever a schedule or supplement to a Master Lease is assigned (each called a “Schedule” throughout the remainder of this article), the Funder must obtain at least a copy of the Master Lease. As will be discussed later in this article, the Originator (and sometimes the lessee) can provide comfort to the Funder that the copy is true, accurate and complete. The Funder should check the Master Lease and the Schedule carefully to be sure that the terms of the Master Lease are incorporated into the Schedule instead of the other way around. If the Master Lease states that the terms of the Schedule are incorporated into the Master Lease, the Funder cannot take an assignment of an individual Schedule under that Master Lease without taking additional precautions. The Funder could, however, take assignment of the original Master Lease and all Schedules incorporated into it. The Funder should also check the language in the Master Lease to make sure that the “Lessor” has the right to assign the Schedule without the lessee's consent. As will be discussed later, some Funders should and will go a step further and send a notice of assignment to the lessee and require that the lessee acknowledge and consent to the assignment.

2) “One-Off” Stand Alone Lease or Equipment Schedule (as applicable)

MUST HAVE: Sole original counterpart of Lease or Schedule.

In the event the lease is a stand-alone lease (a “One-Off Lease”) instead of a Schedule to a Master Lease, the Funder should obtain the sole-original counterpart of the One-Off Lease. Similarly, if the assigned lease is a Schedule to a Master Lease, the Funder must obtain the sole original of the Schedule. In order to assure possession of the “sole” original of a document, the Funder should make sure that either: (a) the Funder obtains the only originally executed version of the document; or (b) if there is more than one originally executed version, the Funder obtains the only one marked “sole original counterpart” or “Counterpart No. 1 of X” (with all other originals being marked “duplicate original” or “Counterpart [2][3][4] of X”).

This requirement stems from the fact that the assigned lease constitutes “chattel paper” and that the only way to assure that the Funder has superior rights to other creditors and funders of the Originator is to take “possession” of the assigned lease. The chattel paper provisions are one of the most technical areas of the Uniform Commercial Code and there are lots of intricacies that are beyond the scope of this article. The amount of energy and resources that the Funder should devote to this requirement depends in large part on the credit risk that the Funder attributes to the Originator and its ability to make the Funder whole in the event other creditors claim an interest in the assigned lease.

The Lessee Notice and Acknowledgment, discussed later in this Article, can provide additional comfort here by requiring the lessee to represent and warrant that there is only one originally executed version of the lease and related documents and that the Funder is the only assignee of such documents. This representation will not necessarily protect the Funder from legal risks that result from the failure to obtain possession of the lease, such as claims of other creditors or risks associated with the Originator's bankruptcy. However, obtaining an acknowledgment from the lessee provides strong practical benefits.

3) Addenda, Amendments, Riders or other Modifications to the Master Lease or Schedule

MUST HAVE: Originals of all signed addenda, amendments, etc. to the Schedule and certified copies of those supplementing or amending the Master Lease.

The Funder should treat any addendum, amendment, rider or other modification to the Master Lease, the Schedule or the One-Off Lease in the same manner as the underlying document that they modify. For example, if the document is “Amendment No. 1 to Master Lease,” then a copy of that document is satisfactory. If however, the document is “Purchase Option Rider to Schedule No. 3,” the Funder should require an originally executed version. Note, however, that it is probably unnecessary to require each original addendum, amendment, rider or other modification to be marked as a “sole original.”

4) Acceptance Certificate

MUST HAVE: EITHER (a) original D & A (preferred) OR (b) certified copy of the D & A AND signed Notice and Acknowledgement by the lessee including statement that equipment is accepted and that the lease has commenced.

Whether the Funder needs an originally signed version (rather than a copy of) the certificate of delivery and acceptance (the “Acceptance Certificate”) depends in part on the role played by the certificate. Many small ticket leases commence on either: (a) a fixed date; or (b) the earlier of (i) the date the acceptance certificate is executed, or (ii) a set period of time after the leased equipment is delivered. If the assigned lease fits either of these two formats, it is satisfactory to have a copy of the Acceptance Certificate.

If, however, the lease term does not commence until the Acceptance Certificate is executed (ie, the commencement date is the date specified on the Acceptance Certificate), that document becomes a more integral part of the lease and it is therefore preferable to have an original D & A (although it is not necessary for it to be marked as a “sole original”). An acceptable alternative is to obtain a copy of the D & A that is certified as true and correct by the Originator and to obtain a Notice and Acknowledgment from the lessee that contains a statement that the equipment has been accepted and the Lease has commenced.

5) Authorization to Enter into Lease/Incumbency Certificate (copy)

SHOULD HAVE: Evidence of Lessee's Authority.

The assignment package should contain a document showing that the lessee is authorized to enter into the lease. There should also be an incumbency certificate that: (a) shows the manual signature and the title of all persons executing the lease documents; and (b) contains a certification from a secretary or other officer of the lessee that the signatures and titles are correct. The incumbency certificate is often a part of the authorization certificate. Copies of these documents are fine.

6) Guaranties and Authorization to enter Guaranty (copies)

SHOULD HAVE: Both an Original of Guaranty and Evidence of the Guarantor's Authority to enter into the Guaranty (especially if Guarantor credit is key to credit decision).

In the event the underlying lease package contains a Guaranty, it is preferable to have an original of the Guaranty. If the Funder sues in court to enforce the Guaranty, the Guarantor can invoke the “best evidence rule” and request that the Funder provide the original of the Guaranty. Although the Funder can explain that it only has a certified copy and the Funder's failure to provide an original should not defeat the Funder's claim, the case proceeds more smoothly with an original.

If the Guarantor is an organization, the Funder should obtain a copy of the authorization of the Guarantor to execute the Guaranty and an incumbency certificate similar to that discussed above with respect to the Lease.

7) Insurance certificate

SHOULD HAVE: Evidence of Property Insurance (especially if the Funder is looking to the equipment as collateral) and Evidence of Liability Insurance (if the equipment has the potential to cause injuries to persons or property).

In the event the Funder is depending on the value of the leased equipment as collateral, it should obtain a copy of the insurance certificate that shows property insurance is in effect and names the Funder as loss payee. For most equipment, the Funder should also obtain an insurance certificate that shows that liability insurance is in effect and that names the Funder as additional insured. This may not be required for certain types of equipment that do not create a risk of injury to persons or property – such as a lease of telephone equipment. Copies of these documents are fine.

8) Other Documents

SHOULD HAVE: Some transactions may require additional documents such as landlord/mortgagee waivers, TRAC Certificates, etc. …

The Funder may need a copy of additional documents unique to the particular transaction. For example, a landlord/mortgagee waiver for certain types of property located on real estate that is not owned free and clear by the lessee. This document limits the possibility that a landlord's lien or mortgagee's interest in property attaches to the leased equipment. It also is useful in obtaining access to equipment in the event the lessee is missing payments on its land rent or its mortgage at the same time it's not paying under the equipment lease.

9) UCC Financing Statement Against the Lessee, as Debtor

MUST HAVE: Evidence that a financing statement was filed against the lessee pursuant to the Lease.

There should be a UCC financing statement filed against the lessee to “perfect” the lessor's interest in the leased equipment. This document is technically only necessary when the underlying transaction is a lease intended as security instead of a true lease. However, it is common to file it in all situations in order to avoid having to undergo costly litigation that is required to prove that a transaction is, in fact, a true lease. The Funder must feel comfortable that the filing was done within the proper time frame and was made in the proper place. It should also be noted that additional precautions are necessary if the underlying transaction is a sale-leaseback such as the conducting of a UCC search against the lessee to expose prior filings that might claim an interest in the leased equipment. This requirement is only important where the Funder is looking to the leased equipment as collateral.

10) Invoices and Proof of Payment

SHOULD HAVE: Acceptable evidence that leased equipment has been purchased for the amount specified in the lease.

The Funder will want to obtain invoices and proof that the vendor has been paid and has transferred title to the Originator or Lessee (as appropriate). This proof is less important if the Funder has the originally executed lease, acceptance certificate and Lessee Notice and Acknowledgment.

Documents Relating to Assignment

1) Assignment Agreement

MUST HAVE: Document assigning lease to the Funder.

The Funder will need an executed assignment agreement whereby the Originator assigns its rights to the Funder and makes all appropriate representations and warranties. There are a variety of ways to structure this part of the transaction. For example, the documentation sometimes takes the form of an outright assignment and other times takes the form of a promissory note that is secured by a collateral assignment of the lease. The reasons behind the various structures are numerous and beyond the scope of this article.

2) Authorization and Incumbency of Originator

SHOULD HAVE: Evidence of Originator's Authority (can be handled at the beginning of the relationship and is less important for established Originators).

At the beginning of a relationship with the Originator, it is nice to obtain a document showing that the Originator is authorized to enter into assignments from time to time with the Funder. It is also nice to obtain an incumbency certificate that: (a) shows the manual signature and the title of all persons executing the assignment documents; and (b) contains a certification from a secretary or other officer of the Originator that such signatures and titles are correct. If the Originator is clearly in the business of assigning leases of this type, this documentation is still preferable but is not as important.

3) UCC Financing Statements relating to Assignment

MUST HAVE: Assignment to the Funder of the Financing Statement filed against the lessee (only necessary if the Funder is looking to the leased equipment as collateral) and Financing Statement filed against Originator.

Assignment of Originator's Filing against Lessee: The rights that the Originator has under the original financing statement filed against the lessee, as Debtor, need to be assigned to the Funder. If the original financing statement has not been filed, the Funder can be listed as “secured party” on that original financing statement and the Originator can be listed as “Assignor” on a “financing statement addendum” attached to, and filed with, the original financing statement. If the original financing statement has already been filed, the Funder will need to file a “financing statement amendment” which references the original financing statement and shows that it has been assigned to the Funder. Otherwise, the Originator will remain the party with the power to terminate or otherwise amend the original financing statement.

Filing against the Originator, as Debtor: the Funder will also need to file a financing statement against the Originator, as Debtor. This protects the Funder in the event the Originator goes bankrupt and a court determines that the Funder does not have “possession” of the chattel paper. The Funder still needs to have “possession” for purposes of defeating other funders, but the filing provides some protection. It is worth noting that, if worded properly, this filing can be a single filing covering all transactions assigned from time to time. However, many Originators will object to the broad language required for this type of filing.

4) Certification of Documents

SHOULD HAVE: Certification by Originator

The Originator should certify that all copies of documents are true, accurate and correct. It is nice to have this certification by way of a separate document to which the copies are attached. However, it is acceptable to handle this issue by way of a representation in the assignment agreement that all copies of lease documents are true and correct.

5) Lessee Notice and Acknowledgment

SHOULD HAVE: Signed acknowledgment from the lessee with certain representations.

It is helpful to have the lessee execute a notice and acknowledgment since this document can provide strong practical benefits. In this document, Lessee will confirm that there has been only one assignment, that there is only one original counterpart for UCC purposes and that Lessee will pay the Funder directly. Whether this document is required depends on the size and nature of the transaction and the extent to which the Funder has originals of other documents.

Although industry practices vary significantly and individual transactions and credit concerns can alter the requirements outlined above, the issues discussed in this article are common to a large percentage of lease syndications and Funders and Originators should therefore be familiar with such issues.

Suggested Minimum Lease Requirements

Note that the importance of these items will vary with outright assignments and discountings of rent streams (for example Return provisions may not be significant to Funders who take collateral assignments or only assignments of rents).

Must Haves: Where these items are not present, the Funder should consider demanding a side letter from the Lessee or additional protection from the Originator:

• Adequate equipment description.
• Hell or high water Clause and Conspicuous Warranty Disclaimer.
• Right of lessor to Assign without Lessee consent.
• Clear rent language and Late Fee Provision.
• Adequate maintenance and Return Provisions.
• Customary defaults.
• Customary Insurance Provisions, including naming of Lessor (and assignee) as additional insured/loss payee and waiver of default/notice of cancellation.
• Provision for payment of taxes.
• General indemnity and income tax indemnity (if applicable).
• Prohibition on Sublease and Assignment by Lessee.
• Clear Event of Loss Language that covers Funder investment.
• UCC-2A Finance Lease Language.
• Grant of Security Interest or written authorization to file financing statement.
• Restriction on Lessee's change of name, structure or state of formation.

Should Haves:

• Statement that each Schedule is a separate Lease and that Schedule language controls over Master Lease language.
• Statement that Lessee grants Lessor a Power of Attorney to negotiate settlement and endorse checks for insurance payments.
• Landlord and Mortgagee waivers furnished on request.
• Clear Commencement Date and provision for Interim Rent prior to Commencement Date.
• Lessor inspection rights.
• Security Deposits should be clearly described and should not be required to bear interest.
• Choice of Law and consent to jurisdiction and venue
• Restriction on movement of equipment to any new location without Lessor consent.

Like many financial products, equipment leases can be bought and sold. The lease assignment market has become increasingly active and complex in recent years, despite the economic downturn of the early 21st century. This article highlights the type of documentation that should generally be required when a broker or other originator of leases (the “Originator”) assigns leases to a funding bank (the “Funder”).

Of course, equipment leases are assigned in a variety of ways including outright assignments and collateral assignments (“discounting” transactions). The underlying leases being assigned are sometimes true leases and other times disguised loans (“leases intended as security”). Although these factors can sometimes affect the documentation that is required, this article outlines what is generally required in both outright assignments and discounting transactions of both true leases and leases intended as security. The article does not address “pure broker” situations pursuant to which the Funder would execute the lease directly, as lessor, as opposed to taking some sort of an assignment from the Originator.

This article also does not address the type of lease provisions that the assigned leases should contain. If leases are executed on the Originator's documents, rather than the Funder's documents, the Funder may want to have an additional checklist that outlines minimum acceptable lease provisions. An example of such a checklist is provided below.

It should also be noted that the importance of much of the documentation discussed below depends on multiple factors such as: (a) whether the Funder is looking to the equipment as collateral, (b) whether a guarantor is a key element of the credit decision; and (c) whether the Originator is established and the extent of its credit worthiness.

Finally, the importance of various documents to each Funder depends on pricing and competitive forces and the Funder's own experience, preferences and intentions. If the lease may be assigned to another Funder, or the portfolio (or company) is being readied for sale, a more conservative approach is advised. That being said, we offer the following list of documents and our observations on their importance to Funders.

The Underlying Lease Documents

1) Master Lease (if applicable)

MUST HAVE: Original of Master Lease or a copy (certified as true and correct by Originator).

Whenever a schedule or supplement to a Master Lease is assigned (each called a “Schedule” throughout the remainder of this article), the Funder must obtain at least a copy of the Master Lease. As will be discussed later in this article, the Originator (and sometimes the lessee) can provide comfort to the Funder that the copy is true, accurate and complete. The Funder should check the Master Lease and the Schedule carefully to be sure that the terms of the Master Lease are incorporated into the Schedule instead of the other way around. If the Master Lease states that the terms of the Schedule are incorporated into the Master Lease, the Funder cannot take an assignment of an individual Schedule under that Master Lease without taking additional precautions. The Funder could, however, take assignment of the original Master Lease and all Schedules incorporated into it. The Funder should also check the language in the Master Lease to make sure that the “Lessor” has the right to assign the Schedule without the lessee's consent. As will be discussed later, some Funders should and will go a step further and send a notice of assignment to the lessee and require that the lessee acknowledge and consent to the assignment.

2) “One-Off” Stand Alone Lease or Equipment Schedule (as applicable)

MUST HAVE: Sole original counterpart of Lease or Schedule.

In the event the lease is a stand-alone lease (a “One-Off Lease”) instead of a Schedule to a Master Lease, the Funder should obtain the sole-original counterpart of the One-Off Lease. Similarly, if the assigned lease is a Schedule to a Master Lease, the Funder must obtain the sole original of the Schedule. In order to assure possession of the “sole” original of a document, the Funder should make sure that either: (a) the Funder obtains the only originally executed version of the document; or (b) if there is more than one originally executed version, the Funder obtains the only one marked “sole original counterpart” or “Counterpart No. 1 of X” (with all other originals being marked “duplicate original” or “Counterpart [2][3][4] of X”).

This requirement stems from the fact that the assigned lease constitutes “chattel paper” and that the only way to assure that the Funder has superior rights to other creditors and funders of the Originator is to take “possession” of the assigned lease. The chattel paper provisions are one of the most technical areas of the Uniform Commercial Code and there are lots of intricacies that are beyond the scope of this article. The amount of energy and resources that the Funder should devote to this requirement depends in large part on the credit risk that the Funder attributes to the Originator and its ability to make the Funder whole in the event other creditors claim an interest in the assigned lease.

The Lessee Notice and Acknowledgment, discussed later in this Article, can provide additional comfort here by requiring the lessee to represent and warrant that there is only one originally executed version of the lease and related documents and that the Funder is the only assignee of such documents. This representation will not necessarily protect the Funder from legal risks that result from the failure to obtain possession of the lease, such as claims of other creditors or risks associated with the Originator's bankruptcy. However, obtaining an acknowledgment from the lessee provides strong practical benefits.

3) Addenda, Amendments, Riders or other Modifications to the Master Lease or Schedule

MUST HAVE: Originals of all signed addenda, amendments, etc. to the Schedule and certified copies of those supplementing or amending the Master Lease.

The Funder should treat any addendum, amendment, rider or other modification to the Master Lease, the Schedule or the One-Off Lease in the same manner as the underlying document that they modify. For example, if the document is “Amendment No. 1 to Master Lease,” then a copy of that document is satisfactory. If however, the document is “Purchase Option Rider to Schedule No. 3,” the Funder should require an originally executed version. Note, however, that it is probably unnecessary to require each original addendum, amendment, rider or other modification to be marked as a “sole original.”

4) Acceptance Certificate

MUST HAVE: EITHER (a) original D & A (preferred) OR (b) certified copy of the D & A AND signed Notice and Acknowledgement by the lessee including statement that equipment is accepted and that the lease has commenced.

Whether the Funder needs an originally signed version (rather than a copy of) the certificate of delivery and acceptance (the “Acceptance Certificate”) depends in part on the role played by the certificate. Many small ticket leases commence on either: (a) a fixed date; or (b) the earlier of (i) the date the acceptance certificate is executed, or (ii) a set period of time after the leased equipment is delivered. If the assigned lease fits either of these two formats, it is satisfactory to have a copy of the Acceptance Certificate.

If, however, the lease term does not commence until the Acceptance Certificate is executed (ie, the commencement date is the date specified on the Acceptance Certificate), that document becomes a more integral part of the lease and it is therefore preferable to have an original D & A (although it is not necessary for it to be marked as a “sole original”). An acceptable alternative is to obtain a copy of the D & A that is certified as true and correct by the Originator and to obtain a Notice and Acknowledgment from the lessee that contains a statement that the equipment has been accepted and the Lease has commenced.

5) Authorization to Enter into Lease/Incumbency Certificate (copy)

SHOULD HAVE: Evidence of Lessee's Authority.

The assignment package should contain a document showing that the lessee is authorized to enter into the lease. There should also be an incumbency certificate that: (a) shows the manual signature and the title of all persons executing the lease documents; and (b) contains a certification from a secretary or other officer of the lessee that the signatures and titles are correct. The incumbency certificate is often a part of the authorization certificate. Copies of these documents are fine.

6) Guaranties and Authorization to enter Guaranty (copies)

SHOULD HAVE: Both an Original of Guaranty and Evidence of the Guarantor's Authority to enter into the Guaranty (especially if Guarantor credit is key to credit decision).

In the event the underlying lease package contains a Guaranty, it is preferable to have an original of the Guaranty. If the Funder sues in court to enforce the Guaranty, the Guarantor can invoke the “best evidence rule” and request that the Funder provide the original of the Guaranty. Although the Funder can explain that it only has a certified copy and the Funder's failure to provide an original should not defeat the Funder's claim, the case proceeds more smoothly with an original.

If the Guarantor is an organization, the Funder should obtain a copy of the authorization of the Guarantor to execute the Guaranty and an incumbency certificate similar to that discussed above with respect to the Lease.

7) Insurance certificate

SHOULD HAVE: Evidence of Property Insurance (especially if the Funder is looking to the equipment as collateral) and Evidence of Liability Insurance (if the equipment has the potential to cause injuries to persons or property).

In the event the Funder is depending on the value of the leased equipment as collateral, it should obtain a copy of the insurance certificate that shows property insurance is in effect and names the Funder as loss payee. For most equipment, the Funder should also obtain an insurance certificate that shows that liability insurance is in effect and that names the Funder as additional insured. This may not be required for certain types of equipment that do not create a risk of injury to persons or property – such as a lease of telephone equipment. Copies of these documents are fine.

8) Other Documents

SHOULD HAVE: Some transactions may require additional documents such as landlord/mortgagee waivers, TRAC Certificates, etc. …

The Funder may need a copy of additional documents unique to the particular transaction. For example, a landlord/mortgagee waiver for certain types of property located on real estate that is not owned free and clear by the lessee. This document limits the possibility that a landlord's lien or mortgagee's interest in property attaches to the leased equipment. It also is useful in obtaining access to equipment in the event the lessee is missing payments on its land rent or its mortgage at the same time it's not paying under the equipment lease.

9) UCC Financing Statement Against the Lessee, as Debtor

MUST HAVE: Evidence that a financing statement was filed against the lessee pursuant to the Lease.

There should be a UCC financing statement filed against the lessee to “perfect” the lessor's interest in the leased equipment. This document is technically only necessary when the underlying transaction is a lease intended as security instead of a true lease. However, it is common to file it in all situations in order to avoid having to undergo costly litigation that is required to prove that a transaction is, in fact, a true lease. The Funder must feel comfortable that the filing was done within the proper time frame and was made in the proper place. It should also be noted that additional precautions are necessary if the underlying transaction is a sale-leaseback such as the conducting of a UCC search against the lessee to expose prior filings that might claim an interest in the leased equipment. This requirement is only important where the Funder is looking to the leased equipment as collateral.

10) Invoices and Proof of Payment

SHOULD HAVE: Acceptable evidence that leased equipment has been purchased for the amount specified in the lease.

The Funder will want to obtain invoices and proof that the vendor has been paid and has transferred title to the Originator or Lessee (as appropriate). This proof is less important if the Funder has the originally executed lease, acceptance certificate and Lessee Notice and Acknowledgment.

Documents Relating to Assignment

1) Assignment Agreement

MUST HAVE: Document assigning lease to the Funder.

The Funder will need an executed assignment agreement whereby the Originator assigns its rights to the Funder and makes all appropriate representations and warranties. There are a variety of ways to structure this part of the transaction. For example, the documentation sometimes takes the form of an outright assignment and other times takes the form of a promissory note that is secured by a collateral assignment of the lease. The reasons behind the various structures are numerous and beyond the scope of this article.

2) Authorization and Incumbency of Originator

SHOULD HAVE: Evidence of Originator's Authority (can be handled at the beginning of the relationship and is less important for established Originators).

At the beginning of a relationship with the Originator, it is nice to obtain a document showing that the Originator is authorized to enter into assignments from time to time with the Funder. It is also nice to obtain an incumbency certificate that: (a) shows the manual signature and the title of all persons executing the assignment documents; and (b) contains a certification from a secretary or other officer of the Originator that such signatures and titles are correct. If the Originator is clearly in the business of assigning leases of this type, this documentation is still preferable but is not as important.

3) UCC Financing Statements relating to Assignment

MUST HAVE: Assignment to the Funder of the Financing Statement filed against the lessee (only necessary if the Funder is looking to the leased equipment as collateral) and Financing Statement filed against Originator.

Assignment of Originator's Filing against Lessee: The rights that the Originator has under the original financing statement filed against the lessee, as Debtor, need to be assigned to the Funder. If the original financing statement has not been filed, the Funder can be listed as “secured party” on that original financing statement and the Originator can be listed as “Assignor” on a “financing statement addendum” attached to, and filed with, the original financing statement. If the original financing statement has already been filed, the Funder will need to file a “financing statement amendment” which references the original financing statement and shows that it has been assigned to the Funder. Otherwise, the Originator will remain the party with the power to terminate or otherwise amend the original financing statement.

Filing against the Originator, as Debtor: the Funder will also need to file a financing statement against the Originator, as Debtor. This protects the Funder in the event the Originator goes bankrupt and a court determines that the Funder does not have “possession” of the chattel paper. The Funder still needs to have “possession” for purposes of defeating other funders, but the filing provides some protection. It is worth noting that, if worded properly, this filing can be a single filing covering all transactions assigned from time to time. However, many Originators will object to the broad language required for this type of filing.

4) Certification of Documents

SHOULD HAVE: Certification by Originator

The Originator should certify that all copies of documents are true, accurate and correct. It is nice to have this certification by way of a separate document to which the copies are attached. However, it is acceptable to handle this issue by way of a representation in the assignment agreement that all copies of lease documents are true and correct.

5) Lessee Notice and Acknowledgment

SHOULD HAVE: Signed acknowledgment from the lessee with certain representations.

It is helpful to have the lessee execute a notice and acknowledgment since this document can provide strong practical benefits. In this document, Lessee will confirm that there has been only one assignment, that there is only one original counterpart for UCC purposes and that Lessee will pay the Funder directly. Whether this document is required depends on the size and nature of the transaction and the extent to which the Funder has originals of other documents.

Although industry practices vary significantly and individual transactions and credit concerns can alter the requirements outlined above, the issues discussed in this article are common to a large percentage of lease syndications and Funders and Originators should therefore be familiar with such issues.

Suggested Minimum Lease Requirements

Note that the importance of these items will vary with outright assignments and discountings of rent streams (for example Return provisions may not be significant to Funders who take collateral assignments or only assignments of rents).

Must Haves: Where these items are not present, the Funder should consider demanding a side letter from the Lessee or additional protection from the Originator:

• Adequate equipment description.
• Hell or high water Clause and Conspicuous Warranty Disclaimer.
• Right of lessor to Assign without Lessee consent.
• Clear rent language and Late Fee Provision.
• Adequate maintenance and Return Provisions.
• Customary defaults.
• Customary Insurance Provisions, including naming of Lessor (and assignee) as additional insured/loss payee and waiver of default/notice of cancellation.
• Provision for payment of taxes.
• General indemnity and income tax indemnity (if applicable).
• Prohibition on Sublease and Assignment by Lessee.
• Clear Event of Loss Language that covers Funder investment.
• UCC-2A Finance Lease Language.
• Grant of Security Interest or written authorization to file financing statement.
• Restriction on Lessee's change of name, structure or state of formation.

Should Haves:

• Statement that each Schedule is a separate Lease and that Schedule language controls over Master Lease language.
• Statement that Lessee grants Lessor a Power of Attorney to negotiate settlement and endorse checks for insurance payments.
• Landlord and Mortgagee waivers furnished on request.
• Clear Commencement Date and provision for Interim Rent prior to Commencement Date.
• Lessor inspection rights.
• Security Deposits should be clearly described and should not be required to bear interest.
• Choice of Law and consent to jurisdiction and venue
• Restriction on movement of equipment to any new location without Lessor consent.