Newsroom

    Bank Guarantees: What All Landlords Should Know

    As published in CK Momentum Issue 4  (Click here to download)

    Bank guarantees are often used by tenants to provide landlords under commercial or retail leases with security about the performance of their obligations. Typically, the terms of the bank guarantee will provide for the landlord to have immediate access to the guaranteed funds without having to wait for a Court decision to confirm that the lessee has breached the lease. 

    Joanne Chang, a lawyer in our Property & Projects team, provides a warning to landlords about a possible pitfall.

    RECENT CHANGES TO THE LAW

    A recent case casts some doubt on the proposition that landlords have immediate access to guaranteed funds: it all depends on how your lease and bank guarantee is worded.

    The Court considered whether a landlord could demand payment under a bank guarantee based on a claim that the tenant had breached the lease, or whether it was only entitled to do so once it was proven the tenant had breached the lease. The Court found the bank guarantee was drafted in a way to suggest that if the tenant was not actually in breach of the lease, the landlord had no right to call on the bank guarantee. An injunction was granted to stop the landlord from calling on the bank guarantee.

    The outcome is clear: landlords need to ensure that leases and bank guarantees are drafted to provide them with immediate access to the bank guarantees without having to prove that an actual breach of the lease has occurred.

    WHAT SHOULD LANDLORDS DO?

    As a landlord, you should ensure that:

    • your lease allows you to approve the bank guarantee, so that you can make sure it is in a form acceptable to you;
    • the lease allows you to call on the bank guarantee where you believe you have acted in good faith and consider that the tenant has breached the lease;
    • you are cautious in assessing your right to call on the bank;
    • guarantees before doing so to avoid any potential litigation; and
    • you review all current leases and bank guarantees to ensure that you are not unduly restricted from calling up under the bank guarantee. While it may be difficult to amend the terms now, you may be able to do so when the lease falls for renewal.
    ClarkeKann is a commercial law firm with offices in Brisbane and Sydney. Our expertise covers commercial & corporate transactions, employment & IR, financial services, litigation, risk management and insolvency, property transactions and resources projects, across a range of industries. For a full list of our legal services, please visit our website at www.clarkekann.com.au. To update your contact details or unsubscribe to any of our publications, email us at ck@clarkekann.com.au

    This bulletin is produced as general information in summary for clients and subscribers and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. ClarkeKann asserts copyright over the contents of this document. This bulletin is produced by ClarkeKann. It is intended to provide general information in summary form on legal topics, current at the time of publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters. Liability limited by a scheme approved under professional standards legislation. Privacy Policy
    < Back to Articles

People

Partners, Steven Cardell and Paul O’Dea were recently listed in Doyle’s Guide to the Australian Legal Profession - Leading Property and Real Estate Lawyers – Brisbane 2016. To make this list requires feedback from various sources but most importantly our clients. We thank our clients for that valuable input and look forward to assisting in your continued property growth.  VIEW MORE

Expertise

ClarkeKann has received the Australia-Taiwan Business Excellence Award for our efforts promoting and advising on most of the major investments from Taiwan into Australia over the last 20 years. Click below for more details about Foreign InvestmentVIEW MORE

Subscribe

Click below to subscribe to our publications and to receive the latest news VIEW MORE