5 Elements to Include in Collateral Assignment of Lease/Landlord’s Waiver

Landlords of commercial properties are often asked to sign a collateral assignment of lease and a waiver of the landlord’s lien on a tenant’s trade fixtures and equipment in favor of the tenant’s equipment lender or franchisor.  The usual form presented permits the lender/franchisor to enter the leased premises in the event of a tenant default under its equipment loan or franchise agreement, in order to repossess equipment and trade fixtures.  This may occur notwithstanding that such a default of tenant’s loan arrangements is not a default under the lease.  When coupled with a collateral assignment of lease, the lender/franchisor will have a right to occupy the premises and to subsequently assign tenant’s leasehold to a new tenant/franchisee.

From a landlord’s perspective, there are several key elements to incorporate into these documents:

1. The obligation of the lender/franchisor to remove the equipment and trade fixtures at, or promptly after, expiration of the lease;
2. The obligation of the lender/franchisor to pay rent and other charges during its possession of the premises;
3. The obligation of the lender/franchisor to restore any damage to the premises resulting from removal of equipment and trade fixtures;
4. The right of the landlord to approve any future tenant that lender/franchisor may wish to take the place of the existing tenant; and
5. The continuing obligation of the existing tenant, notwithstanding the collateral assignment of the lease and any subsequent repossession or assignment of the lease by the lender/franchisor.