To avoid this risk, contractors should insist that they must be allowed to accept or reject the assignee chosen by the bank, provided that approval is not unreasonably withheld. Typically, the requirement to sign consent to assignment occurs when the owner arranges the mortgage, which can take months after the design agreement is finalized. In most cases, this will indicate that consent must be returned immediately because the landlord is trying to complete their loan. This can put the engineer in a difficult position if there is offensive language, especially if the lender is not willing to negotiate. Although the engineer is generally not required to sign his consent, the refusal to do so can affect his relationship with the owner and jeopardize the prospect of future work. If the owner is already in arrears with payment to the engineer, he can say that he will not be able to pay until he closes the loan. While requests for consent for assignment are common, especially for large projects, there is no standard form. Consent should be read carefully and, preferably, reviewed by the engineer`s legal counsel. While the lender cannot accept the design contract unless the owner defaults, the forms used by many banks contain provisions that have nothing to do with the design agreement. Engineers who are not careful may find that they have waived valuable rights or accepted unreasonable obligations, even if there is no negligence on the part of the owner. Although the general form of consent among lenders is similar, the forms are increasingly adapted and contain many conditions other than simple consent to the assignment. Whenever a contractor is confronted with such a document, he must be vigilant and pay attention to the following: The purpose of the contractor`s consent is to allow the owner`s bank to take over the property in case the owner defaults on his loan so that the bank can force the contractor to complete the project. These documents serve a legitimate purpose to ensure that the bank does not leave a hole in the ground; However, contracts have significant legal consequences and often contain significant waivers and promises that contractors would never accept when negotiating the main contract.
What can the general contractor do? Negotiate a specific time frame for the lender to choose to terminate or resume the construction contract. Assignment Once a lender takes over a project from a defaulting owner, it may attempt to assign the lender`s rights to the construction contract to a new entity. He will want to fulfill this order without the consent of the contractor and will usually include a provision in the consent form that allows him to do so. Contractors should be wary of these clauses and insist that no contract can be entered into without the prior written consent of the Contractor. If you are involved in a project for which the owner applies for financing, it is not uncommon to receive from the owner a general “consent to transfer” form that the owner`s bank has prepared for you. Consent to the assignment allows the transfer of rights from the owner to the lender under your agreement in the event that the owner defaults on the loan. The landlord will often provide you with the consent form after signing your contract and the current project. You may be pressured to sign the consent as submitted and within a tight time frame. Why hurry? According to Nancy M. Rigassio, Vice President, Executive Claims Counsel, AXA XL Design Professional, project funding is usually at stake and the owner has a short window of opportunity to receive it. “Some homeowners commit to entering into their contracts with the design team and contractor as well as the properties as collateral for the construction loan,” she says. “It`s common for a lender to try to get approval from the design consultant to assign the owner/consultant agreement to the lender,” Rigassio adds.
“If the owner defaults on the loan, the assignment allows the lender to complete construction, sell the project, and get as much money back as possible.” Rigassio notes that this agreement could benefit A/E, which might otherwise not be paid. “But problems can arise when the lender tries to change the contractual agreement and introduce onerous obligations for the design professional,” she says. “Perhaps because of today`s very low interest rates, lenders feel they can get more rights from homeowners.” Consent to assignment documents (also known as “testamentary documents” in the banking industry) can contain a variety of onerous requirements. For example, they may require you to transfer ownership of your plans and specifications to the lender, even if your professional services contract retains reasonable ownership rights over you, the party who created those plans. .