Clients assigning contract rights to lenders

Thu, 12 May 2011 13:34:00 GMT

In the last two weeks we have seen a marked increase in design professionals being asked to consent to their client assigning their contractual rights to the lender. These consent forms often state that the design professional agree that the client, who has borrowed money from the lender, assign their contractual rights to the lender so that the lender has the ability to exercise these rights if the borrower (client) defaults on their obligations. Most of the issues concern business-related issues and have limited impact on the design professional’s professional liability risks. However, the assignment language should be reviewed carefully to make sure that the design professional is not extending its liability through the statements to the lender.

Another area of concern is that the assignment language contains express warranty or guarantee language that the lender can rely on to assert a claim. Design professionals should be prepared to review these assignments carefully; our Management Advisory provides guidance:

www.schinnerer.com/risk-mgmt/Documents/ManagementAdvisories/Lender-assignment-certification.pdf (limited to policyholders and brokers only).

As the economy starts to recover from the recession, firms will be seeing more assignment consent forms as banks start lending money again.

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Clients assigning contract rights to lenders