Best Practices: Landlord Waivers for Leasehold Improvement Loans

According to Chapter 5, Section V of SOP 50 10 5(H), when substantial loan proceeds from a U.S. Small Business Administration guaranteed loan are to be used for leasehold improvements or a substantial portion of the collateral of an SBA loan consists of leasehold improvements, fixtures, or equipment that will become affixed to real property, the SBA requires a lender to obtain a collateral assignment of lease and a landlord waiver. A collateral assignment of lease is required to allow the lender to have the ability to find another person or entity who may be willing to assume the loan and the lease for the rest of their respective terms. Since a lender cannot reasonably remove the leasehold improvements it has financed after a default under the loan, this assignment is the best way to realize on the value of the improvements in a liquidation scenario. On the surface, it sounds like a simple document to obtain. A lender would have the borrower assign its interest in the lease to the lender in an assignment document executed at closing. Unfortunately, the borrower, if it were to take such an action could trigger a default under the terms of its lease. … Continue reading Best Practices: Landlord Waivers for Leasehold Improvement Loans