How to address Borrower's concerns pertaining to leases and rents assignments. The Assignment of Leases and Rents follow best-practices and standards to protect the Lender's collateral.
Sections C (ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION) and D (ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY) of the security instrument address Assignment of Rents and Leases.
Section C.1 & C.2 – Assignment of Rents
Section C.1 establishes a present and absolute assignment of rents to the lender, which is a standard legal structure to ensure enforceability in the event of default. Section C.2 clarifies that you retain a revocable license to collect and use rents so long as no Event of Default has occurred. E.g. if a default occurs on July 1, rents collected through June 30 remain under your control and may be used to pay property-related expenses and retained thereafter, consistent with the license granted. Upon default, the license terminates, and the lender may collect rents directly.
Section D.1 & D.2 – Lease Control and Lender Rights
This structure is standard in commercial loan documents and is not intended to interfere with day-to-day operations but rather to provide a mechanism for lender oversight when warranted. As such these provisions are part of our standard documentation and it is a business decision by the Lender if they would like to remove that clause on a per deal basis.The language in Sections D.1 and D.2 is intentionally structured to provide the lender with flexibility to protect its collateral in a variety of scenarios, including but not limited to default. While the borrower retains control over leases under normal circumstances, the lender reserves the right to intervene if necessary to preserve the value of the property or address risks that may not rise to the level of a formal default.
Section D.5 – Lease Approval and Term Restrictions
The lease approval and minimum term requirements are standard provisions designed to protect the lender’s interest in the property by ensuring stable, predictable income and tenant quality. These provisions are particularly important in commercial and investment property lending, where the lender does not have direct control over property operations. That said, the Lender may, as a business decision, determine that the lease forms they are currently using are acceptable and treat them as ‘approved forms’ under the loan documents. Additionally, while the documents include a standard requirement for initial lease terms of at least six months, the Lender may, at its discretion, choose not to enforce this requirement based on its stated business model. For example this would allow a Lender to continue operating under its hybrid Mid-Term/Short-Term Rental strategy without requiring formal amendments to the documents. However, this is a discretionary decision by Lender and may be revisited if circumstances change or an Event of Default occurs.