Practice Management Member Conversations

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
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Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

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Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
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Brian - first, get advice from an attorney and from your insurance underwriter before deciding what to do.  Second, keep in mind that you have leverage now (they need your assignment in order to complete this project) and you lose your leverage the moment you sign such an Assignment.  You should look at your current owner-architect agreement to see whether you have contractually given your client the right to assign the owner's agreement and responsibilities to a third party and/or lender.  Hopefully, not.  However, if you did agree to this in your current contract, you can likely still negotiate the terms of such assignment.  Your attorney is likely to advise you that any assignment should not dilute the owner's responsibilities, which should follow the assignment.  It might be that the lender is intending to honor the owner's responsibilities in full; however, highly unlikely that you will retain all of your rights if/when a claim is made.  And you should consider upcoupling the payment issue - you likely have the right to paid for all services successfully completed to date.  Get paid, then negotiate the assignment terms.
To other architects reading this, beware when an owner includes a unilateral assignment clause - it's risky business.

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Michael Strogoff, FAIA, AIA Practice Management Knowledge Community Advisory Group member
Strogoff Consulting, Inc.
Mill Valley CA
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Original Message:
Sent: 09-24-2010 16:50
From: Brian Hawkins
Subject: Assignment of Architect's Contracts to Lender

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
-------------------------------------------
Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

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Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
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I run across these types of documents fairly often in my practice.  I have little difficulty signing a simple assignment, but most of the documents I see are more complicated than they need to be.  Often times I see language that states that the architect will assign his "plans and specifications" to the lender.  We always make it clear that we will only assign our contract.  This puts the lender will be in the same position as our former client with the same benefits and obligations under that agreement.

Sometimes I also see certifications that come attached to these assignments.  Some of these certifications have said that "in order to induce the lender to make the loan", the architect must certify to the lender that the project complies with all laws, ordinances, covenances, zoning, environmental.......and virtually everything else about the project.  I usually suggest that it is not my obligation to induce the bank to make a loan. 

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Albert Macchietto AIA
Alley Poyner Macchietto Architecture, PC
Omaha NE
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Original Message:
Sent: 09-27-2010 01:47
From: Michael Strogoff
Subject: Assignment of Architect's Contracts to Lender

Brian - first, get advice from an attorney and from your insurance underwriter before deciding what to do.  Second, keep in mind that you have leverage now (they need your assignment in order to complete this project) and you lose your leverage the moment you sign such an Assignment.  You should look at your current owner-architect agreement to see whether you have contractually given your client the right to assign the owner's agreement and responsibilities to a third party and/or lender.  Hopefully, not.  However, if you did agree to this in your current contract, you can likely still negotiate the terms of such assignment.  Your attorney is likely to advise you that any assignment should not dilute the owner's responsibilities, which should follow the assignment.  It might be that the lender is intending to honor the owner's responsibilities in full; however, highly unlikely that you will retain all of your rights if/when a claim is made.  And you should consider upcoupling the payment issue - you likely have the right to paid for all services successfully completed to date.  Get paid, then negotiate the assignment terms.
To other architects reading this, beware when an owner includes a unilateral assignment clause - it's risky business.

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Michael Strogoff, FAIA, AIA Practice Management Knowledge Community Advisory Group member
Strogoff Consulting, Inc.
Mill Valley CA
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Original Message:
Sent: 09-24-2010 16:50
From: Brian Hawkins
Subject: Assignment of Architect's Contracts to Lender

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
-------------------------------------------
Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

-------------------------------------------
Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
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Brian:

I have seen and signed these type of consent forms for 25 years from lenders and they are quite common. I always change the wording to be sure that if the client defaults and the lender assumes the position of the client, they are responsible for any outstanding and future cost of professional services, in accordance with the terms of the Owner-Architect Agreement. Lenders understand that professionals want and expect to be paid for our professional services. I have not had a problem with lenders agreeing to reasonable modifications in this agreement. They are also happy with architects who sign them without question and unfortunately, many do.

Read the document carefully, to be sure that they have not added in "funny" language that will hurt you later. Assume the worst will happen and hope for the best. If the worst did not happen, lenders would not require this consent.

You may ask your client if they will pay for your attorney to review the document, as signing this type of agreement was not contemplate as a part of your professional services and this is a complex legal agreement that requires review by your legal and professional insurance advisors. I would probably spent the money regardless as to whether they will you pay or not.


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Dennis Hall FAIA
Hall Architects, Inc.
Charlotte NC
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Original Message:
Sent: 09-24-2010 16:50
From: Brian Hawkins
Subject: Assignment of Architect's Contracts to Lender

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
-------------------------------------------
Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

-------------------------------------------
Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
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Michael Clark AIA
Director Of Design
H&H Design-Build
New Albany IN
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Brian:
There seems to be more and more of these "out of the ordinary" conditions coming up these days.  I can't say that I have experienced and exact condition as you have, but have had similar situtions.

I don't try to be an attorney, so this is where I call ours and ask for advice.  It is well worth the cost to bring him in at the beginning of a concern before it becomes an issue.



Original Message:
Sent: 09-24-2010 16:50
From: Brian Hawkins
Subject: Assignment of Architect's Contracts to Lender

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
-------------------------------------------
Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

-------------------------------------------
Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
-------------------------------------------

There are times when you need legal counsel and my advice would be that you get it for this issue.  Please don't take what I say as legal advice - it is offered for discussion and illustration only.

There are legitimate reasons why a lender would seek an assignment - particularly so that they have benefit of the Architects continued service in the event the borrower defaults.  However, that obligation should run both ways.  The language you recite suggests to me that post assignment the lender can enforce your contract against you (i.e.; require you to continue to provide service and sue you if the basis presents) but they are not required to perform the borrowers' obligations (principally - to pay you) unless they choose to (give a client the option to pay you and guess option they will likely elect).  Presuming there is a default and the lander takes assignment that will occur typically for one reason - the borrower - your client has no money.  Even if the borrow had the necessary funding, why would they pay you where the lender has foreclosed?

I generally advise clients this sort of assignment may be OK if the lender assumes all of the obligations of the borrower in the event a default and an assignment actually occurs.  Under these circumstances I would advise against it (at least unless the problematic language is negotiated away).

Insofar as not paying you unless you sign, I am not familiar with your contract but presuming there isn't some language that creates an obligation to permit an assignment on specific terms (I presume not or they would not be asking for your permission) my sense would that would constitute a material breach of the contract which would entitle you to either suspend service or under certain circumstances terminate the contract.

That all said, do you realize that an AIA contract is assignable without the Architect's written consent despite what the language says?  If an assignment occurs, that assignment is considered a breach of the contract - the non assignment clause can be breached just like any other term - and as a consequence the assignment would be valid but you could sue for breach of contract.  Unfortunately, you really have no damages.  If you want an assignment made without your written consent to be invalid, you must include language on the order of "Any assignment made without the prior written consent of the Architect shall be invalid".  If you are using an AIA document, your contract may already be assignable (albeit the contract in whole - the lender would be obligated to perform all of the borrower's obligations)

I had a case involving that very issue.  When I questioned documents counsel about it, their reply was that giving the Owner the right to assign the contract was what they intended.  I find that somewhat hard to believe since simply being silent on the issue would create the same effect (a contract without a clause limiting assignment is freely assingable) and I suspect that is simply an error. 

That also said, it is further evidence as to why you need legal counsel familiar with your specific issues.

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Frederick Butters FAIA
Attorney
Southfield MI
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Original Message:
Sent: 09-27-2010 08:41
From: Michael Clark
Subject: Assignment of Architect's Contracts to Lender



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Michael Clark AIA
Director Of Design
H&H Design-Build
New Albany IN
-------------------------------------------

Brian:
There seems to be more and more of these "out of the ordinary" conditions coming up these days.  I can't say that I have experienced and exact condition as you have, but have had similar situtions.

I don't try to be an attorney, so this is where I call ours and ask for advice.  It is well worth the cost to bring him in at the beginning of a concern before it becomes an issue.

Brian:

First thing you should check is your contract with the Client, to see if you are obligated to agree to an Assignment of your contract to a 3rd party. 

We just completed a series of contract assignments to a Client's lenders.  It is a complex task, as the Lender's document wording needs to be carefully reviewed with your professional liability insurance carrier, and even with your attorney.  The Client may put a lot of pressure on you to sign quickly, but you need to protect yourself and your copyright by having the language reviewed and approved by your insurance.  Be sure you understand how you will get paid if the Lender takes over.  The Lender would only take over the contract if the Owner (your Client) defaults, so you should make a determination as to how likely that would be.

In our case, the Lenders agreed to almost all the language changes we requested, and came to a conclusion with which we were comfortable, given our knowledge of the stability of the Client.
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Linda Poncini AIA
Principal
Carrasco & Associates
Palo Alto CA
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Original Message:
Sent: 09-24-2010 16:50
From: Brian Hawkins
Subject: Assignment of Architect's Contracts to Lender

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Practice Management Member Conversations .
-------------------------------------------
Has anybody out there had previous experience with this?

We have nearly completed Construction Docs for an office building to be leased to the US Government by our Client, who was the "successful offeror", having responded to a USFS SFO (governmentese for RFP).

The Client has been negotiating with his Lender to secure construction funding.  Unexpectedly, the Lender just sent us a "standard" form, called "Assignment of Architect's Contracts", for our signature. 

I have not had to sign on to one of these before.  The Lender assures us that this Assignment merely allows them to complete the construction project if the Borrower (our Client) defaults on the loan.  They also assured us that they "always get one" in situations like this.

Under the "Acknowledgment of Assignment" paragraphs, they include these statements:
    Architect agrees that :
        (A) Lender may enforce the obligations of the Architect's Contract pursuant to the above assignment with the same force and effect as if enforced by Assignor (Client), and 

        (B) Lender may, but shall not be required to, perform the obligations of Assingor, and Architect will accept such performance in lieu of performance by Assignor in satisfaction of Assignor's obligations under the Architect's Contract.

    Architect further agrees that any alteration or amendment of the Architect's Contract will not be effective unless and until approved in writing by Lender.

The project is in a State which requires a written agreement with a Client before performing work; this almost sounds like the Lender is being substituted for the Client, and makes me wonder if the State would actually require a new Owner-Architect Agreement, or some modification of the existing one.

We think they are basically saying, if we want to get paid any further on the project, we need to sign the form.

So, what's the downside if we don't sign?  Do other Architects refuse to sign, and get paid successfully?

Any input would be very much appreciated.

-------------------------------------------
Brian Hawkins AIA
Principal
Brian J. Hawkins, Architect
Medford OR
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