As commercial real estate values are rooted in a dependable cash flow, landlords (and their lenders) are keenly interested in the creditworthiness of their tenants. As most businesses are not in the Fortune 500, many will face the issue from prospective landlords of how they will secure their financial obligations under the lease. Where landlords are increasing their construction allowances to address rising construction costs, lease security has taken on increased importance for tenants today. It should be addressed early in the business negotiations when multiple properties are under consideration. A tenant’s business is best served when they can put more of their money to work for their business instead of having their money held hostage by their landlord. In this post, I outline the three primary approaches to lease security: (1) Cash Security Deposit; (2) Letter of Credit; and (3) Guaranty.
