Leases are assigned to lenders to facilitate the orderly and more effective enforcement of the security in the leased property. The lessor assigns to lease funders the rights associated with a lease to be applied against the lessor’s obligation until full repayment has been received by the funders. The rights in assigned leases include the right of the assignee to receive rental payments, rights in guarantees, additional collateral and insurance proceeds, and the right to enforce default terms.
| Collateral Assignment of a Lease |
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Under the UCC, a security interest in or ownership of the assigned lease can be assured either by the filing of a UCC-1 financing statement naming the assignor as debtor and the funder as secured party in the assignment of a security interest in chattel paper (collateral assignment) or by the funder taking possession of the chattel paper in the sale of the leased asset (outright assignment).
| Lease Assignments | |
|---|---|
| Type of Assignment | UCC 9 |
| Collateral Assignment | Security in Chattel Paper |
| Outright Assignment | Sale of Chattel Paper |
By using a master lease agreement (MLA), an executed original lease schedule can be designated as chattel paper when assigning or selling new equipment lease transactions in order to perfect the security interest of the assignee or purchaser under UCC 9 by possession of the chattel paper. Moreover, it will not be necessary for the assignee or purchaser of the lease schedule to take possession of the original of the MLA if the lease schedule constitutes the transaction’s chattel paper.
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