Tenant Financing - Chattels and Leases

ICSC 2010

As we know, every businesses need CAPITAL to operate. They need capital to fixture, furnish, equip their Premises, buy inventory and pay employees. BUT in these challenging economic times, capital is not that readily available and where it is available, it comes with a high price tag.

Lenders want Security – in everything (all of the Tenant’s assets, present and future).

But from a Landlord’s point of view, having a Lender in the picture isn’t so bad. Its like having a partner. Another entity, a financial institution, invested in the welfare of the Tenant.

TYPES OF SECURITY

Although Security may take different forms, the most prominent types of Security that impact a Landlord in Commercial Leases are:

A. a General Security Agreement (a “GSA”); and
B. Leasehold Mortgages.

A.  Let’s Start with a GSA

What is a GSA?

A GSA is a charge over the Tenant’s personal property - furniture, fixtures, inventory and equipment. A typical GSA gives the Lender the right to seize and sell the charged property of the Borrower. However, many GSA’s charge “all the Tenant’s property and assets ” and a lease is a form of asset so it is - knowingly or unknowingly – the GSA can also be in part a form of leasehold mortgage.

What does a Lender with a GSA need from the Landlord?

A Lender requiring a GSA from a tenant will need the Landlord to waive its right to distrain i.e. the landlord’s right to seize and sell the tenant’s assets for rent arrears.

Why do they need a Landlord’s Waiver?

Lenders don’t want to get into a priority battle with the Landlord’s statutory lien over the same “Assets” as Landlord’s usually get priority so an agreement with the Lender will give the lender priority on loan default.

For the complete article view the document below.