Don't Lose Benefit of ‘Confession of Judgment’ When Lease Is Assigned

You may be in a state that permits what attorneys call a “confession of judgment.” With a confession of judgment, a tenant agrees that if it fails to pay some amount—such as rent—required by the lease, it will admit that it caused a lease default and won't try to stop a court from quickly ordering it to pay you. This way, you can avoid a lengthy court battle with the tenant and get paid quickly.

To get the full benefit of a confession of judgment, your lease will probably contain a provision called a “warrant of attorney.” The warrant of attorney permits an attorney named in it to appear in court on the tenant's behalf to confess judgment. But if your lease is like many we've seen, it may have a loophole that could undermine the effectiveness of the warrant of attorney in some situations. That is, the warrant of attorney may not apply to the tenant's assignees.

Assignee Fights Off Warrant of Attorney

A Pennsylvania owner's lease had that loophole. The tenant signed a warrant of attorney that was in a lease. The tenant later assigned the lease. The assignee signed an assignment and assumption agreement, in which it agreed to accept the tenant's responsibilities and duties under the lease “as if the Assignee were the original tenant under the Lease.” When the assignee failed to pay rent, the owner filed court documents claiming that the assignee had confessed judgment and owed rent. The assignee argued that it didn't agree to a confession of judgment because it hadn't signed the warrant of attorney in the lease.

A Pennsylvania court ruled that because the assignee hadn't signed the original lease containing the warrant of attorney, the assignee hadn't confessed judgment. The court said that a warrant of attorney is “very special and significant.” To apply to the assignee, it had to be in writing and signed by the assignee. A general reference in the assignment and assumption agreement wasn't enough [JBG/Rosenfeld Retail Properties v. Anspach].

Require Tenant to Get Assignee's Signature

If your lease requires the tenant to get your prior consent to an assignment, there's a good way to plug this loophole, according to Philadelphia attorneys Richard R. Goldberg and Tarin A. Decembrino. They suggest that as a condition of your consent to an assignment, you require the tenant to get the assignee to sign a warrant of attorney to confess judgment. To play it safe, have the tenant make the warrant of attorney conspicuous in the agreement it signs with the assignee and get either the assignee's signature or its initials on the warrant, says Goldberg.

Check with your attorney to see if your state allows confessions of judgment. If it does, add the following language to your lease's assignment clause where it lists the conditions for your consent, says Goldberg: CLLI0038

Model Lease Language

(x) The Assignment and Assumption of Lease Agreement (“Assumption Agreement”) must recite, in its entirety, the warrant of attorney to confess judgment contained in Clause [insert #] of this Lease. The recitation of said warrant of attorney must be conspicuous (e.g., either boldfaced or in all capital letters). In addition, the assignee must sign or put its initials immediately below said warrant of attorney in the Assumption Agreement.

CLLI Sources

Tarin A. Decembrino, Esq.: Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market St., 51st Fl., Philadelphia, PA 19103-7599; (215) 665-8500; decembrinot@ballardspahr.com.

Richard R. Goldberg, Esq.: Partner, Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market St., 51st Fl., Philadelphia, PA 19103-7599; (215) 665-8500; goldbergr@ballardspahr.com.