Taking Assignments of Equipment Leases: An Analysis of an Acceptable Documentation Package
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").
Index
A comprehensive list of key cases discussed in this issue.
Lease Drafting and Negotiation: A Checklist of Easily Overlooked Details
Not surprisingly, most of the time we spend negotiating leases is devoted to discussions of significant, fairly predictable aspects of the landlord/tenant relationship: the fundamental business terms of the deal, details of business terms that were not fully settled before the lawyers became involved, and a variety of legal issues from assignment to zoning. As we all know, these substantive negotiations can sometimes consume more billable hours than our clients would prefer and (if we are fortunate) there are always other deals waiting in line demanding our attention. If we focus only on the major points, though, we may miss some meaningful issues and potential traps, for both the principals and their counsel, lurking in the mundane, "boilerplate" provisions of our leases. This article will explore several such provisions, not necessarily in order of importance. Although some specific suggestions are made and some sample provisions are included, the primary intent of this discussion is to provide a checklist of easily overlooked items to be examined.
Tenant Concerns When Drafting Accessibility and Visibility Protection Provisions
Often in leases, particularly retail leases, the tenant seeks to protect the accessibility and visibility of the area immediately in front of its store location. For that purpose, landlords and tenants create language that prevents the landlord from placing any retail operation, structure or obstruction in front of the tenant's store within a certain number of feet or a designated area in the common area (often referred to as a "Restricted Area"). However, very often due to the vagueness of the language included in this type of a provision, as well as due to the limited nature of remedies available in this type of a provision, the tenant does not receive the type of accessibility and visibility protection that it thought it had negotiated. As a result, tenants should consider the following factors when negotiating accessibility and visibility protection provisions in their retail leases: (i) include a picture or site plan designating the "Restricted Area"; (ii) identify any specific remedies attributable solely to this provision; and (iii) limit competing uses for stores in the Restricted Area, if the existing retail tenants in the Restricted Area ever relocate from their existing locations or vacate the retail facility.
The Chapter 11 Giveback: Preventing Preferential Transfers When Negotiating Settlement Agreements with Defaulting Tenants
You negotiated a settlement for your landlord client with a tenant that had not paid rent for a number of months, and, as part of the settlement, you recently received all the defaulted payments. Shortly thereafter, however, the tenant commenced bankruptcy proceedings. Moreover, accompanying the notice of commencement of bankruptcy was a summons and complaint against your client in which the debtor/tenant seeks the recovery of every settlement payment made, claiming they were preferential transfers.
Dueling Provisions: Creditor Prevails in Showdown Between Bankruptcy Code Sections
A Missouri bankruptcy court has permitted a creditor to take possession of spare aircraft parts and equipment from a debtor despite the fact that the creditor failed to perfect its security interest in the equipment. In an issue of first impression in the Sixth Circuit, the court held that under the plain language of Section 1110 of the Bankruptcy Code, a creditor, as a conditional vendor, had a right to take possession of the collateral pursuant to its agreement with the debtor, and that this right was not limited or otherwise affected by any other section of the Code (including Section 544) or by any power of the court. <i>Vanguard Airlines, Inc. v. International Aero Components, Inc.,</i> 295 B.R. 908 (Bkrtcy.W.D.Mo.,2003).
