Outright assignment is the nonrecourse true sale of a lease in which legal title and the risks, rewards and control under an existing lease or lease commitment are transferred from a lessor to a lease purchaser – the lease funders – in exchange for payment of consideration to the lessor. The most common approach is the outright assignment of an existing lease, where the lease transaction has been closed, the asset has been delivered to and accepted by the lessee, the asset’s price has been paid by the lease purchaser and legal title to the asset has been conveyed by the originator to the purchaser. Outright assignment is used where lessors wish to transfer and funders, while providing the lease funding, wish to take legal title to leased assets, all property rights and the tax benefits of asset ownership. Under the US Uniform Commercial Code (UCC), outright assignment is a “sale of chattel paper”.
An alternative approach is for the lease originator to transfer some or all of the rights under a lease to the funder before the originator purchases the lease asset, whereby the funder acquires the asset directly from the vendor or the seller in a sale-leaseback and the lease is executed in the funder’s name. The main advantage to this approach is that the asset’s legal title does not pass through the originator, thereby precluding lien issues and assignee exposure to the originator’s credit risk. For the originator, the disadvantage to this approach is the loss of control over the relationship with the lessee.
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