Dear Mr. La Vardera:
Thank you for noting your concerns regarding lender consent forms. AIA Contract Documents is aware of this practice by lenders. Indeed, it is often the case that prior to loan settlement the Owner's lender will require the architect to execute a consent that will allow the Owner to assign the Architect's contract over to the lender in the case of owner default on the loan. Before 1987, our standard owner-architect agreements prohibited any assignment of the agreement absent mutual consent of the parties. Recognizing, however, that construction lenders commonly requested that the architect consent to assignment, B141-1987 created a limited exception to the no-assignment clause. In the current B101-2007, at Section 10.3, the assignment language reads as follows:
The Owner and Architect, respectively, bind themselves, their agents, successors, assigns and legal representatives to this Agreement. Neither the Owner nor the Architect shall assign this Agreement without the written consent of the other, except that the Owner may assign this Agreement to a lender providing financing for the Project if the lender agrees to assume the Owner's rights and obligations under this Agreement.
Accordingly, the Owner may assign the agreement to the lender but only if the lender assumes the rights and obligations of the Owner under the agreement.
While this indicates that the agreement can only be assigned if the lender assumes the same rights and obligations under the Agreement the owner has, we recognized that situations similar to what you described will occur - i.e. consents will be presented last minute, putting the architect in an uncomfortable situation. For that reason, B101-2007 includes the following language at Section 10.4:
If the Owner requests the Architect to execute certificates, the proposed language of such certificates shall be submitted to the Architect for review at least 14 days prior to the requested dates of execution. If the Owner requests the Architect to execute consents reasonably required to facilitate assignment to a lender, the Architect shall execute all such consents that are consistent with this Agreement, provided the proposed consent is submitted to the Architect for review at least 14 days prior to execution. The Architect shall not be required to execute certificates or consents that would require knowledge, services or responsibilities beyond the scope of this Agreement.
This language is included to protect against the scenario you described. Under section 10.4, the Architect will execute a consent from the lender if the consent is consistent with the underlying agreement and the Architect is given the consent 14 days prior to the time it will be executed. Section 10.4 reiterates that the architect is not required to execute consents that would require the architect to do more than what is required in the Agreement, and it gives the Architect a time period in which to have any such consent reviewed by an attorney and negotiated if necessary. So under Section 10.4 the architect is only required to execute consents that are consistent with the Agreement and the Architect should get at least 14 days to evaluate whether the consent is consistent with the agreement. It may be the case that the architect eventually reaches a business decision and agrees to certain concessions to the lender in the consent in order to maintain the architect's relationship with the client, but the 14 days should give the Architect enough advance notice to make informed and reasoned decisions in this regard.
As for the suggestion that the AIA develop a standard form consent agreement, we do not believe that such a standard form would be feasible. Among other things lending laws and requirements for assignment vary from jurisdiction to jurisdiction. Additionally, even if we developed a balanced form, it is unlikely that the lenders would use it in lieu of their manuscript document.
Most likely, the best solution from CRAN's perspective is to educate its members on the potential issues presented by lender's consents and about how the above B101 language can help protect the Architect and avoid the scenario described in your email. By having an owner/architect agreement with the above language in place prior to any loan settlement, the architect and the owner can discuss in advance the circumstances that may arise if the owner requests the architect sign a consent. The owner is then educated on the issue and can coordinate with the lender to provide the architect any requested consent forms within the time period provided in the owner/architect agreement. The architect then has the ability to evaluate the consent and decide if it is willing to agree to the assignment.
We hope this response is helpful. Please feel free to contact us again with any question about the content or usage of AIA Contract Documents. You can also use the online Knowledge Base (http://info.aia.org/knowledgebase/" href="http://info.aia.org/knowledgebase/">http://info.aia.org/knowledgebase/) to get immediate answers to nearly 250 frequently asked questions (FAQ) about selecting and using AIA Contract Documents. You can find out what you need to know quickly and efficiently by browsing through a multilevel Table of Contents, or you can go directly to FAQs on your subject with an easy-to-use Search feature. You can also find document synopses, commentaries, comparisons, articles and other resources at www.aia.org/contractdocs/reference.
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Documents Information
AIA Contract Documents
The American Institute of Architects
Washington, DC
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Original Message:
Sent: 06-21-2011 11:39
From: Gregory La Vardera
Subject: Lenders with aggressive "Assignment of Architect's Contract" terms
Confronted something new the other day, and I am wondering if AIA legal, or AIA Contract Documents could address this.
What happened was a mere hours before settlement a lender sprung some paper work on a residential client, and on me - an "Assignment of Architect's Contract" paperwork which I as architect was expected to sign. Not unreasonable in concept, it insures for the bank the Architect will service the project for them under the terms of the original contract if the borrower defaults.
However the document the bank asked me to sign contained onerous language and terms, and when presented in the final moments this way the intention was to pressure me into surrendering many rights established in my original contract.
For instance, the document I was presented with today included the following stipulations:
- If the borrower were to default and the contract assigned to the bank I would have to honor the terms of the original contract, however it stipulated that the bank would not. So, for instance, the bank would have no obligation to pay me for the fulfillment of my contract.
- It stipulated that even before any default my client would have to vet any change in our agreement with the bank who would have last word. So even without any default the bank would rule over changes to our contract.
- The bank proposed that I would have to accept any third party that the bank may decide to assign my contract to. So I would loose control over who I choose to do business with.
- The bank also proposed that they would take full rights to use and reuse my design documents without any further compensation to me.
It was perhaps the most outrageous contract requests I've ever been presented with, and done in the context of "you better sign this or you are going to screw up your client's settlement".
I think the AIA needs to establish a "Standard Assignment of Architect's Contract" AIA document that can be substituted in situations like this, so that our profession can consistently put a lid on this blatant rights grab by lenders. Can CRAN request AIA to address this. This is very important.
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Gregory La Vardera
Architect
Gregory La Vardera Architect
Merchantville NJ
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