Letters of Credit in Lease Transactions, Part I: Advantages to Landlord and Landlord’s Lender
Probate and Property. July/August 2002, Volume 16, Number 4
By Susan Fowler McNally, Carter Klein, and Michael Abrams
Susan Fowler McNally is a partner in Gilchrist & Rutter in Santa Monica, California; Carter Klein is a partner in Jenner & Block, LLC, in Chicago, Illinois; and Michael Abrams is a partner in Gilchrist & Rutter in Santa Monica, California.
Landlords generally prefer to enter into leases with creditworthy tenants—tenants with high and demonstrable net worth, substantial tangible and liquid assets, and a long track record of successful operation and paying bills. Most landlords do not have that luxury. Moreover, even tenants that start out cash flush or rock solid can suffer credit deterioration to the point that they become high-risk tenants long before the normal commercial lease expires. Recent examples include Ha-Lo Industries, e-Toys, and Enron.