About

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.

Contact us

Topics

Archives

Select Month:

Contributors

Posts tagged landlord.

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.

Part one of this post will explain acceleration of rent provisions and how various courts around the country have scrutinized these provisions and taken varying positions on their enforceability. Part two of this post will discuss how landlords can include enforceable acceleration of rent provisions in their commercial leases.

What is an Acceleration of Rent Provision?

An acceleration of rent provision gives the landlord the right, after a default by the tenant, to demand the entire balance of the unpaid rent owed under the lease for the entire remainder of the term to be paid in one lump sum. Under the law of most states, if there is no acceleration of rents provision, the landlord is typically entitled only to collect rent from the tenant as it becomes due under the lease each month for the remainder of the term.

In Part I of this blog post, we discussed the varied interests of the landlord and the tenant's lender in the tenant’s personal property located at the premises in the context of a commercial lease.  Part II below will discuss suggested compromise solutions and a typical landlord waiver. 

January 29, 2013
Facebook LinkedIn Twitter Email Print

Commercial real estate landlords and the lenders for their tenants have competing interests with respect  to the tenant's personal property located at the demised premises. 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  retail and restaurant tenants, while the tenant’s lender providing premises fit-out and/or working capital financing desires a security interest in the same property . The landlord’s lien may be created either by contract under the terms of the lease or through operation of law, and allows the landlord  to levy the property located at the demised premises of a  tenant who has failed to pay rent.  While the tenant would rather not allow either party to maintain a lien against its personal property, the tenant's action in this regard is often dictated by the requirements of its lender.  While  national retailers with strong credit typically have the leverage to insist on the  waiver or subordination of  their landlord’s lien rights, most smaller or regional tenants must navigate between their landlord's and lender's competing interests.  Part I will discuss the varied interests of the landlord and the tenant's lender in the tenant’s personal property are discussed in this article, and Part II will discuss suggested compromise solutions and a typical landlord waiver.  Note that the article that is the basis for this post first appeared in the December, 2012 issue of Commercial Leasing Law & Strategy.