In any commercial mortgage loan transaction, an “Assignment of Leases and Rents” is one of the core agreements required by the lender. The intent of an Assignment of Leases and Rents is to secure the obligations of a borrower by granting the lender an interest in both the income of the collateral real property (the rents) and source of such income (the leases). Increasingly, however, states have been treating the nature of the assignment, absolute or collateral, in an Assignment of Leases and Rents differently. Such difference in treatment can have a significant effect when a lender seeks to enforce its remedies against a borrower that goes into bankruptcy.

Typically, an Assignment of Leases and Rents contains language stating that it is a present and absolute assignment from the borrower to the lender of each lease at the subject property, along with the rents (or any other income) paid or payable in connection with such leases and the related lease guaranties. The express language maintaining that the grant is a present and absolute assignment is meant to differentiate it from a collateral assignment of an interest in the property (similar to a mortgage), which would require a lender to foreclose or pursue another remedy to obtain possession of the secured property. To further protect the lender, the related mortgage may also contain language granting the lender a separate security interest in the leases and rents along with all of the other real and personal property of the borrower.

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