What is the primary purpose of including an assignment of contracts in leasing/financing documents?

• A. It eliminates the need for insurance on the collateral.
• B. It changes the ownership of those contracts to the lender.
• C. It allows the lender to step into the borrower's rights under key contracts to ensure continued performance or remedies.
• D. It terminates all existing contracts.

Answer: (C)

Assigning contracts in leasing and financing documents gives the lender the right to step into the borrower's shoes under key agreements, so ongoing performance and remedies can be secured even if the borrower runs into trouble. This protects the collateral and the expected cash flows by allowing the lender to enforce, modify, or substitute contract rights to ensure continued service, supply, or revenue. In practice, the lender can pursue the contract’s obligations directly, ensuring continuity of important arrangements that underpin the loan or lease. It isn’t about eliminating insurance, transferring ownership of contracts, or terminating existing agreements.