Marks & Associates, P.C. 
December 2017
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Wishing you a Happy Holiday and a joyful New Year. Best wishes from your friends at Marks & Associates, P.C.

Barry, Matt, Ian & Tammy

A very Merry Christmas to y'all. (There are perks to being Jewish - I get to wish everyone what is really the appropriate greeting of the Season and no one can say that I am a disciple of Roy Moore or anything the like).
Seriously, folks, at this time of year, many of us mellow out and think about being thankful, New Year's resolutions, what it would be like to live in a world of peace and similarly nice things. We at M&A have a lot to be thankful for, we resolve to do better for y'all and be better citizens and... Peace on Earth?
Have you noticed that the world seems angrier these days? Not just in the long time since the Good Ol' Days our parents speak of, but since 2000? At some point, things just seemed to get...harder. Deals are tougher to close and fund. People seem to lose patience faster.
Blame the hectic pace of electronic communication. Blame the internet, allowing every idiot with an opinion to post it, even if supported by blatant lies and hypocrisy. Blame the President or Hillary (why are we still talking like the election is tomorrow?).
How about blaming BLAME? Every crime has criminal, but every misfortune does not have an evil-doer at the controls. We seem to need a scapegoat for every ill in society. We do not defend our ourselves when it is possible to attack someone else for their weaknesses. 
How about remembering COMPROMISE? The men and women who founded our nation were out-and-out zealots. But, they created a place where even the "wrong" people have an equal right to speak, believe and worship as they choose. Every subject does not require that we line up on opposite sides. What if we had to reach a compromise...or else. Couldn't we?
How about KINDNESS? Just because there is no referee, doesn't mean there are no rules to our discourse. Why are so many of us so angry all the time? Do I need to mention what this anger has produced?
On behalf of everyone at Marks & Associates, we hope you have a safe, healthy and happy Holidays. And that we keep some of the good spirits around next year, if only to grease the gears of business and strengthen our nation where we seem to need it most: in our hearts. 
Lessee Assignments:
What's Wrong With This Picture?
"Dear Lessor:

We (the Lessee) anticipate selling our assets to WXYZ CORP (together, "Transferee"). In connection with the Agreement, we intend to assign all of its right, title and interest in the Lease to Transferee and, concurrent with such assignment, Transferee will assume our obligations under the Lease (such assignment and assumption, the "Assignment").  With this letter, we are seeking your consent to the Assignment. 

By signing and returning this letter, you (Lessor) (a) consent to the Assignment, (b) agree that the Assignment shall not constitute a breach of, or give rise to or accelerate any rights under, any provision of the Lease, (c) acknowledge that the Lease will continue in full force and effect following the Assignment, and (d) agree that any notice requirement relating to the Assignment is satisfied or hereby waived." 

So what's wrong with this request for consent to assignment that one of our clients actually received (more or less the same language)? "What's wrong this picture?"  Remember those games? One of the palace guards is wearing his hat upside down or something. My kids loved it. So, what is wrong with this picture?

Lessee is selling its business to Transferee. This may be a default under the Lease or EFA ("sale of substantially all assets"). Whether it is or not, Lessee must assign the Lease or EFA to the Transferee. This certainly should be a default. In fact, we don't like "consent not unreasonably withheld" where assignments are involved. Maybe subleases (depends on lessee credit AND nature of the equipment, among other things).

Assignments are different and are almost always combined with a request for the release of the original Lessee. Generally speaking, an assignment does not automatically release the original Lessee, although (unlike a sublease), it is more than a transfer of mere possession of the Equipment. 

Many Lessors sign letters like this without much thought. After all, it says that the Transferee is assuming the original Lessee's obligations, right?

Here are a few of the things the letter does not say:
  1. It should be clear that Transferee's assumption of the obligations commences on the date of the closing and whether those obligations include anything existing on that date (such as unpaid rent, property taxes for the period since the last assessment, etc).
  2. Although we might argue it is presumed, it should be clear whether the original Lessee is released for future obligations and more importantly, with regard to the existing obligations described in item 1.
  3. It is nice that the original Lessee is saying that the Transferee is assuming obligations, but Lessor is not provided a copy of the assignment/assumption document. The Transferee should, in consideration of the grant of consent, also sign this letter (with changes) or a document delivered to Lessor before the consent is given stating that the Transferee assumes the obligations for the benefit of Lessor.
  4. We like to see the original Lessee represent that it is not in default and the Transferee state that, at least to its knowledge, neither the original Lessee nor Lessor is in default under the Lease.
  5. Where is Transferee's contact information? Is an ACH set up?
  6. Can the Lessor draw credit information on the Transferee before consenting?
There are more things that, at least in a larger transaction, we would like to see, but what else do you think is missing? Good topic for internal discussion. Another good topic: What is your policy and procedure on these matters? Lessors have gotten in trouble where the first person answers "sure we will consent" and the boss later adds "if you pay a transfer fee."  

( Because Who has Time to Write Articles in December?)

   How do your late fee and payment default provisions mesh? If you give a 5-day grace period in each, what is to prevent your borrower or lessee simply paying late every month?

   Is your choice of law supported by a reasonable relationship between the selected state and the deal? Is it where you are located or incorporated? In some states, the provision can be ignored if the contract bears no relation to the parties or subject matter. One suggestion: adding a consent to jurisdiction clause requiring litigation in the same state may help. Judges would seem to prefer to apply the law they know and be less concerned with public policy arguments favoring other states.

   Usury and licensing laws are generally tied to the state where the borrower or lessee is located. Our research suggests that exposure to state laws is greatest in deals with interest rates over 18%, motor vehicle financings, micro-ticket leases and loans and deals involving sole proprietors ("dba's").

   "All assets" security interests must be more specifically described in the security agreement than in a related financing statement. 

   Merely filing a UCC-1 does NOT create a security interest. 

   Do you need to include serial numbers in the collateral description? Well, if your borrower goes out of business, will you be able to identify your equipment or will there be several lenders squabbling over similar items.

   Should you rely on PMSI? Many (if not most) small ticket lenders rely on having a purchase money security interest, but some lenders always do UCC searches and obtain subordinations. We generally suggest that clients have a policy in place with a dollar threshold and check for existing liens before lending large sums of money or dealing with particularly weak credits.

   Should you include financial covenants in your lease or EFA? Traditionally, the equipment finance industry's answer is "No, that is one of the things that differentiates us from the banks."   True, but when dealing with start-ups and weak credits, net worth, debt service ratios and other financial requirements do make sense. If adding these, take a good look at language requiring financial statements; having a financial covenant doesn't mean much if the reports to monitor it are not coming in.

   Interest calculation:  360? 365? actual days? 30-day months? Do your documents indicate one means of calculating interest when your computer program uses another?

  Security deposits or advance payments? If you take a payment of any kind before the equipment is delivered and/or before your money is advanced, you really should have some form of written agreement as to when it will be returned and when it will be retained. You cannot rely on "this is what everyone does" or "isn't it always the law that I can...." No, it isn't.

Birmingham Office
400 Century Park South
Suite 100
Birmingham, AL 35226
(205) 251-8301

Direct Mail To: 
P.O. Box 11386
Birmingham, AL 35202
Barry S. Marks   
Direct:  205.251.8303 │
Matthew D. Evans   
Direct:  205.251.8302  │

Atlanta Office
Centennial Tower
101 Marietta Street NW #3600
Atlanta, GA 30303
(770) 988-5949

P.O. Box 566726
Atlanta, GA 31156
Ian J. Platt  
Direct:  770.988.5949  │

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