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Methods for Securing Against Tenant Defaults

By Raymond J. Werner
October 01, 2003

The first part of this article addressed the problem of the impact of tenant defaults and bankruptcies on landlords and suggested various methods for the landlord's protection. The conclusion will discuss several specific devices.

Security Deposits. Security deposits are an age-old form of security for the performance of the tenant's obligations under a lease. In the simplest of transactions, the tenant deposits a fund with the landlord to be used to protect the landlord against the economic consequences of a tenant's default. The amount of the fund is the product of negotiations and usually involves a multiple of the monthly rent payable under the lease. In more sophisticated commercial transactions with other than the most creditworthy of tenants, the landlord wants the tenant to deposit a substantial sum, perhaps a multiple of the yearly rent payable under the lease, especially if the landlord pays for substantial tenant improvements.

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