Bank Guarantees As Security Under A Lease

Bank Guarantees are a popular and convenient alternative to holding a security deposit during a lease term for many landlords. However, care must be taken to ensure the Bank Guarantee is effective security and not liable to challenge by either the bank or the tenant upon presentation by the landlord in the event of default. We recommend that landlords ensure their tenants strictly comply with the following requirements for Bank Guarantees to minimise this risk. These include:

• the accurate identification of the landlord as favouree (eg include the ACN for a company);
• including the full name of the tenant under the Lease (as opposed to merely the obligation to pay rent);
• specifying the complete and accurate name of the tenant and tenancy (especially where the customer of the bank for whom the bank guarantee is issued is not the tenant). There is authority that the validity of the Bank Guarantee is in doubt unless the Bank Guarantee directly refers to the