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Quickies
Based, in part, on recent ELFA LegalTalk discussions (thanks, guys):
Deferral Agreements:
Don't forget that they should be null and void if the lessee defaults on the non-deferred lease provisions, like insurance, taxes, maintenance, or bankruptcy.
Trade Names:
You know (and your operations staff had better know) that you ignore trade names (dba's, fictitious names) when filing a UCC financing statement. Always file in the debtor's legal name and be sure you have it exactly right. There is another side to the question.
Is YOUR trade name registered in any state involved in the transaction, or where a lawsuit may be brought? In most states, you cannot sue in your trade name unless it is registered. This may not be necessary if the name is disclosed to be a trade name for your corporation or limited liability company and, like qualification to do business, is curable without voiding the contract.
Here's a brain-teaser. If you buy a discounted lease that is signed by the lessor in its unregistered trade name (a private-label lease, perhaps), and the lessor goes out of business, can you register the trade name yourself if you need to? I would guess that you could register the name, but remember there is likely to be a lessee lawyer trying to trip you up.
Broker's License: It's been years since we updated our research, but
Income Tax Indemnity:
Back in the day, this was the topic of heated debates between lessor and lessee counsel. For those who do not generally dabble in federal income tax law (and don't forget that there can be state law implications), many forms adopt the "acts or omissions" standard, leaving the lessor unprotected if the structure of the transaction causes the IRS to treat it as a financing instead of a lease. You might want to discuss this with any client doing tax leasing.
Force Majeur Clauses:
These sections, common in manufacturing and supply contracts, provide that a party is excused from performance if prevented by labor unrest, war, "act of God" and/or a host of other possibilities. They do NOT belong in leases or EFAs. The lessee's primary obligation is to pay rent. The lessor's only obligation should be to allow the lessee to continue use and "quietly enjoy" the equipment as long as there is no default. The lease or EFA is a hell or high water, unconditional and absolute.
Just say no, but if you are required to include such nonsense in a lease or financing document, at the very least exclude the obligation to pay rent. Unfortunately, that is what some of us are facing due to COVID-19, and possible overbroad state legislation.
"Loan Broker" Licenses: YOU MIGHT WANT TO READ THIS:
- If you are a broker/originator/lessor who signs leases and EFAs in its own name and the assigns (discounts) them to a bank, funder or other lessor, or
- If you purchase leases or EFAs from anyone listed above.
Is a lease a "loan" for these statutes? Is a $1-out lease a "loan"? An EFA? What are the penalties and do they apply to a funder? The definitions, penalties and other language, varies wildly from state to state. It might be worth a look. Bear in mind that these lists are the result of review of state statutes and, in some cases, calls to the appropriate state officials. some may be inapplicable to your business for one reason or another. We are not given anyone an opinion here, just raising possible issues. Most, if not all, of these states are likely to exclude specifically vendors, and we do not believe a vendor leasing company (even a separate corporation) would be covered. Also, banks may be excluded in some states (Cal).
1. The following states require licenses, or at least some form of registration to act as a "loan broker" in a business transaction. Some of these may be inapplicable to you for one reason or another.
California (a Finance Lender License), Illinois, Indiana, North Carolina, Nebraska, Ohio, Oklahoma, Rhode Island, Utah, Vermont, Tennessee (loans to individuals, which may include sole proprietors).
2. Note that these states restrict or require a license to collect an "advance fee" - compensation payable by the borrower before the loan is placed with a lender.
Arizona, Arkansas, Georgia, Iowa, New York, New Jersey, North Dakota, Pennsylvania
3. Finally, these states, have specific do's and don'ts for loan brokers. These requirements may include restrictions on the collection of advance fees.
Arkansas, Connecticut, Georgia, Iowa, New Jersey, New York
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