Performance guaranteed: Securing a commercial tenant’s lease obligations. Comparing guarantees and rent deposits

Contents

Security for payment of rent by a tenant underpins not only the landlord’s return on its investment, but also the valuation of the asset.  Historically, landlords have accepted guarantees for performance by the tenant, typically from a parent company, or from a director and shareholder.  However, guarantees have come to appear increasingly vulnerable in the light of legal developments over recent years.  The benefit of a guarantee can be lost through successive assignments of the lease, or by variation of the lease.  Guarantees may be set aside for undue influence.  Insolvency procedures have been used to restructure lease commitments, and effectively relieve parent companies of the burden of guarantees at precisely the point where the landlord expected to be able to call on them.  This does not mean that guarantees are no longer required, but landlords will increasingly be interested in other available forms of security, principally rent deposits.  But a rent deposit raises its own set of issues surrounding financial compliance requirements, effective registration, the impact of insolvency, and procedures upon assignment.  This module surveys the different types of available security.

Learning Objectives

As a result of watching this video, delegates will:

• Be able to identify what measures can be put in place upon taking the benefit of a guarantee, to limit the risk of losing it in future
• Understand how, and to what extent, the benefit of a guarantee can be retained upon an assignment of the lease
• Know how insolvency procedures can be used to attack guarantees, and what to expect
• Appreciate the differences between the various ways in which rent deposits can be structured, and their practical implications
• Recognise the scope of the ability to require additional security upon an assignment of the lease

Speaker

MARK SHELTON

Mark Shelton has worked in major commercial law firms for 30 years.  As a property litigator he worked at Linklaters, and was later a partner at Lawrence Graham.  He has acted for clients including Land Securities, British Land, Allied Dunbar Assurance, J Sainsbury plc and the Burton Group, gaining experience of the full range of contentious work in a commercial property context.

More recently he has practised as a professional support lawyer, working at DLA Piper and Eversheds, and now works freelance as a legal trainer.  He is also the author of The Lease Guide website. Outside work, he does his best to reconcile an enthusiasm for wine and cuisine with an equal enthusiasm for cycling and triathlon.