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This blog focuses on real estate, land use and construction-related topics affecting Virginia and the Washington, D.C. metro area. With topics ranging from contract drafting and negotiation to local and regional land use project updates, the attorneys at Bean, Kinney & Korman provide timely insight and commentary on the issues affecting owners, builders, developers, contractors, subcontractors and other players in the industry. If you are interested in having us cover a specific topic, please let us know.

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Posts tagged commercial landlord tenant.

As reported by the National Restaurant Association and other industry experts, there are over one million restaurants in the US, but the failure rate is very high (a majority close within three to five years). With online shopping and delivery becoming more and more prevalent, landlords of all types have faced increasing vacancies for traditional retail stores. As a landlord of an office, mixed use, shopping center or stand-alone retail pad seeking to fill a vacancy, there are five important factors to consider before marketing the property or executing a lease agreement with a restaurant.

Landlord Waiver Agreement in Favor of Tenant’s Lender

As noted in part 1 of this article, the tenant’s lenders will also want a security interest in the tenant’s personal property to secure the repayment of the tenant’s loan obligations, creating a conflict between the lien rights of the landlord and the lender. Because of this conflict, as a condition to the financing, a lender will typically request that the landlord execute a waiver of its security interest.

Banks that provide financing for commercial tenants and the real estate landlords for those same tenants both want additional security in the tenant's personal property located at the premises. The interests of the landlord and the lender are in conflict. The landlord is looking to secure the tenant's rental obligations by taking a lien against the tenant's fixtures, inventory, and equipment located in the space, which may be particularly valuable in the case of certain retail, restaurant or industrial tenants. At the same time, the tenant’s lender providing tenant improvement and/or working capital financing desires a security interest in the same property. A landlord’s lien may be created, depending on the state, under statutory lien rights, the common law, or by contract under the terms of the lease, and gives the landlord the right to levy the property located at the demised premises of a defaulting tenant.

In Part 1 of this series, the definition of guaranty and the means for landlords to enforce guaranties was discussed.

Recognizing that the guaranty is a condition to entering into a lease, and its leverage is limited, the guarantor would still like to limit its exposure under a long-term lease. At the same time, the landlord wants the security of an unlimited and unconditional guaranty, at least until such time as the tenant has a track record of success or can provide better financials. Because these competing interests are critical business terms, any attempts at limiting the guaranty need to be raised early in the lease negotiation process by tenant and preferably at the time of the negotiation of the letter of intent.

As a condition to entering into a new lease, landlords often require a guaranty of lease from a personal or corporate guarantor in connection with those tenant entities that do not have either a high enough net worth or annual revenue, or for whatever other reasons do not meet the landlord’s financial criteria. A guaranty of lease is a covenant by the guarantor to be responsible for the obligations of the tenant. For example, for a tenant business set up as a new limited liability company that has one or two principal owners, the landlord will likely require that the owners personally guaranty the tenant’s obligations under the lease since the limited liability company would have little or no assets and no track record. Or for a tenant entity that is a wholly owned subsidiary of a parent corporation, the landlord will likely require that the parent corporation serve as the guarantor.

Winding down our update of the first round of Case Watch opinions, the Virginia Supreme Court has finally released its long awaited decision in Tir Conaill Properties, L.C. v. 2401 Wilson, LLC, Record Number 090855. Although the opinion is quite short at only three pages, it is chock full of warnings to the unwary litigator.

This case involved a commercial lease dispute between Tir Conaill Properties, L.C., the tenant, and 2401 Wilson, LLC, the landlord. The day before trial, 2401 Wilson filed a pre-trial memorandum, arguing for the first time that Tir Conaill’s complaint should be dismissed because it failed to file a certificate for transacting business under an assumed name as required by Virginia Code Section 59.1-69 (A).