At a minimum, the landlord will need to present a sight draft to draw under the letter of credit, and generally also must present a certificate with varying degrees of specificity to the effect that the landlord is entitled to the sum being drawn under the letter of credit. The letter of credit will have a maximum stated amount and a stated expiration date (although it may also contain an automatic renewal, or “evergreen” provision), and will describe the documents that the landlord must provide in order to receive funds under the letter of credit.
The tenant will then arrange with a financial institution to issue the letter of credit for the benefit of the landlord. If a letter of credit is contemplated, a landlord and tenant will agree on the types of obligations under the lease that the letter of credit proceeds will cover and the circumstances under which the landlord is entitled to draw under the letter of credit to obtain the proceeds. This article briefly describes the use of letters of credit in leasing contexts, the traditional independence of letters of credit, the new bankruptcy law developments, and then suggests ways in which a landlord can attempt to strengthen the security provided by a letter of credit. However, recent developments suggest that, in the context of a tenant’s bankruptcy, letters of credit may not be independent in all respects, which limits their value to some degree. The advantages of letters of credit include the added creditworthiness of the financial institutions that issue the letters of credit, the landlords’ ease in obtaining funds under the letters of credit, and the independence of the letters of credit from the obligations under the related transactions. In recent years, landlords have begun to require standby letters of credit as additional protection in lieu of or in addition to security deposits or guaranties.
Landlords traditionally protect themselves under lease agreements by obtaining cash security deposits or obtaining guaranties of the leases.
0 kommentar(er)
