Tenant's Financing and Tri-Party Agreements – Important Considerations – Part 1

Tenants borrow capital to fixture, furnish and equip premises, buy inventory and pay employees. When the borrower is a tenant that means a landlord is involved so a 3 way negotiation ensues. However, in these challenging economic times, capital is not as readily available and lenders are less amenable to negotiate terms affecting their security.

For the landlord, having a lender in the picture should be viewed positively. It is like getting a “guarantor” for some of the tenant’s obligations.

The lender’s security often includes:

A.  a General Security Agreement (“GSA”): It is a charge over the Tenant’s personal property - furniture, fixtures, inventory and equipment - and gives the lender the right to seize and sell the charged property. If broadly worded it can also act as a form of leasehold mortgage.

B.  a Leasehold Mortgage (“LM”): Since a lease is an asset if it has favourable terms in the marketplace and is assignable, a charge of the lease to the lender as security is common and may be part of a GSA or in addition to a GSA.

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