What is a lease assignment? (with photo)

An assignment of leases is an agreement between the owner of a property and a designated second party that may allow that second party to manage the property for a period of time.

A lease and lease assignment is an agreement between the owner of a particular property and a designated second party. The terms and conditions allow the second party to collect any rent payments paid by the tenants and manage that property for a period of time. This type of arrangement is most commonly used to settle a loan or some type of credit given by the second party to the homeowner and remains in effect until the debt is fully paid off.

During the assignment of leases, the owner of the property remains the registered owner of the property. There is no transfer of title, although the creditor is usually privileged to manage the property as he sees fit. This means that during the term of the lease, the lender can use part of the proceeds raised to maintain the property, while applying the rest of the collected rent payments to the outstanding balance of the loan amount.

Choosing to create a rental assignment is usually because the property owner needs a quick injection of funds for some reason. Rather than taking out a loan and simply using the property as collateral, lease assignment allows the landlord to borrow against future income, which is realized as tenants make regular rent payments. As with any type of loan situation, there is an interest rate applied to the outstanding balance, with a portion of each month’s proceeds being withdrawn, part of the principal and also part of the interest owed.

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The benefit to the homeowner is that loans with this stipulation often carry very competitive interest rates. This means that over the life of the loan, the homeowner is likely to pay much less interest on the loan installments. Since a lease assignment can easily be structured between two people, there is also the advantage of not having to go through a bank or mortgage company. If the homeowner can find an angel lender who is willing to advance money now and receive rent income back every month, the paperwork is kept to a minimum and the landlord can receive the advance on the funds almost immediately.

It is not uncommon for a lease assignment to also contain clauses that protect the interests of both the landlord and the lender. These provisions provide protection to the lender in the event that the rents charged fall below a certain point due to vacancies. At the same time, the owner is protected from the lender’s attempt to obtain ownership of the property, as long as monthly payments are minimal.

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