Lender Certifications: A Hidden Risk for Design Firms
Design firms are often asked by clients to sign documents requested by the client’s lender. These forms can go by several names, including Consent to Assignment, Collateral Assignment of Contract, and Architect or Engineer Certification and Consent. For the purpose of this article, we will refer to these documents as “Lender Consents.”
These requests often come with urgency. The client may stress that the firm must sign immediately or risk delaying the loan closing. These forms typically arrive well after the project has started and often after the contract with the owner has already been signed. The language in Lender Consents can be dense and legalistic, as they are drafted by attorneys working on behalf of the lender, not the design professional.
That is why it is important to share any Lender Consent request with your professional liability agent, insurance carrier, or legal counsel before signing. These professionals can help determine whether the language poses risks to your firm.
Why Contract Language Matters
The original agreement between the design firm and the owner plays a major role in whether or not the firm is obligated to sign a Lender Consent. If your contract with the owner was well written, it may allow you to reject or revise the form rather than sign it as-is. Even if the client insists that the form must be signed immediately, you are usually allowed to make reasonable edits.
Industry standard documents, such as those from AIA or EJCDC, often include helpful clauses. For example, some contracts allows the architect to review and decline certificates or consents that go beyond the scope of the original agreement or require information the architect is not obligated to provide.
This kind of language helps protect design firms from taking on unintended legal or financial exposure.
What To Look Out For
While many firms sign these forms without issues, trouble can arise if the client later defaults and the lender seeks to enforce the consent. In such situations, the terms you agreed to could result in costly obligations or a loss of payment.
To reduce that risk, remove or modify any Lender Consent form that includes the following:
Requirements to report material project changes to the lender or obtain their approval
Idemnity clauses that shift legal responsibility to the design firm
Statements that waive your lien rights or make the lender’s lien superior
Language that limits or delays payment for work already completed
Terms that transfer ownership of your designs to the lender in the event of default
New responsibilities that go beyond what was agreed upon in the original contract
Clauses that create a fiduciary duty or third-party beneficiary rights for the lender
Provisions that significantly change the risk profile of the project without additional compensation
It may also be wise to include a mutual termination clause, allowing you to end the relationship if the lender arrangement becomes unworkable.
These forms may look routine, but they are not always harmless. A well-drafted contract with the owner can help you avoid signing anything that adds unnecessary risk. If a Lender Consent includes problematic language, you have the right to ask for changes.
Even though these situations may not lead to frequent claims, when problems do occur, they can have major consequences. That is why design professionals should always review these requests carefully and seek input from their insurance and legal advisors.
We are available to provide referrals to consultants by providing guidance relative to insurance issues and even certain preventives, from construction observation to developing and applying sound human resources management policies and procedures. Please call on us for assistance. We're a member of the Professional Liability Agents Network (PLAN).
We provide the following material for informational purposes only. Before taking any action that could have legal or other significant consequences, speak with a qualified professional who can provide guidance that considers your unique circumstances.