CHAPTER 4A Security Deposits and Other Forms of Security

• Jurisdiction: United States
• Publication year: 2022

CHAPTER 4A Security Deposits and Other Forms of Security¹

Nancy Ann Connery Schoeman Updike Kaufman & Gerber, LLP New York, New York

Chapter Contents

§ 4A.01 Introduction

[1] General

[2] Amount of Security

[a] Security Initially Required
[b] Changing the Amount of the Security

[3] Transfer of Security

[4] Assignment of Lease

[5] General Tenant Concerns

[6] Landlord Issues—Treatment of Security Deposits in a Tenant's Bankruptcy

§ 4A.02 Kinds of Security

[1] Introduction

[2] Cash Security

[a] Segregation of Cash Security
[b] Interest and Earnings on Cash Security
[c] Cash Security—The Bankruptcy Problem

[3] Letters of Credit

[a] What Is a Letter of Credit?
[b] Treatment of Letters of Credit in a Tenant's Bankruptcy
[c] Issuing Bank Failure

[i] General
[ii] Role of the FDIC
[iii] Landlord Steps to Mitigate Risk

[A] Seek Flexibility
[B] Adverse Issuer Events
[C] Providing for an Objective or Subjective Measurement Standard in the Lease for Issuer Financial Condition
[D] Conclusion

[d] Standby Letters of Credit Versus Cash Security Deposits in a Tenant Bankruptcy

[i] Advantages
[ii] Disadvantages

[e] Letters of Credit—General Information

[i] Common Forms of Letters of Credit
[ii] The Parties Involved
[iii] Governing Codes
[iv] Irrevocability/Modification of Letter of Credit
[v] Conditions to Payment
[vi] Term of Letter of Credit/Evergreen Letters of Credit
[vii] Transferability
[viii] Presentation, Governing Law, Jurisdiction and Venue, and Enforcement
[ix] Partial Drawings
[x] Notice of Draw
[xi] Sample Lease Provision
[xii] Comment

[4] Guaranties

[a] Introduction
[b] Basic Components of Guaranties—Landlord's Concerns

[i] Consideration
[ii] General Waiver of Defenses
[iii] General Rule—Avoid Release of Guarantor
[iv] Avoid Release of Guarantor by Reason of Tenant's Bankruptcy
[v] Avoid Release of Guarantor by Reason of a Modification of Lease
[vi] Avoid Release of Guarantor by Reason of the Tenant's Assignment of Lease
[vii] Waive Defenses Based on Landlord's Forbearance
[viii] Payment and Performance vs. Collection Guaranties
[ix] Holdover and Post-Termination Obligations
[x] Successors and Assigns
[xi] Subordination of Guarantor's Claims/Deferral of Right to Sue Tenant
[xii] Recovery of Attorneys' Fees and Disbursements
[xiii] Waiver of Notices
[xiv] Waiver of Jury Trial
[xv] Joint and Several Liability
[xvi] Lease Provisions

[c] Guaranty of Performance and Obligations
[d] Guarantor Protections
[e] "Good Guy" Guaranty Issues
[f] Preserving

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