Commercial Lease Bonds
A lease bond is a contract between three parties: (1) landlord, (2) tenant, and (3) surety underwriter. The lease bond may be held by the landlord in lieu of a cash security deposit, letter of credit, or a personal or corporate guarantee. It serves as security for the tenant’s full and complete performance of the financial terms of its commercial lease.
Commercial Lease Bonds are offered in terms of 1-5 years.
Features & Benefits
Cash Flow
If a cash deposit has already been used to secure a leased property, why not consult your landlord and exchange it with a Commercial Lease Bond. This gives you access to more working capital or more opportunities for investment.
Convenience
With a Commercial Lease Bond there is no need to borrow against an existing property to access equity or go through the laborious process of organising a bank guarantee. With an Commercial Lease Bond, the working capital will remain working.
Assessment Criteria
The Commercial Lease Bond's underwriters experienced commercial lease assessors understand client‘s business and financial needs. Meaning, the assessors are able to identify strong customers which makes it easier to qualify for a lease bond.
Guarantors
The Commercial Lease Bond's underwriters accepts guarantors to assist qualifying when a client’s acceptable asset base is low, usually when a corporate entity is the propsed lessee.
Cost Effective
The efficient and innovative patented structure of our Commercial Lease Bond underwriter allows us to offer a very cost effective alternative to traditional purchasing means.
24 Hour Turnaround
Our Commercial Lease Bond underwriters perform bond application assessments within 24hrs.
Higher Bond Amounts
Our Commercial Lease Bond underwriters will approve bond amounts up to 25% of the customer’s acceptable asset base or Net Tangible Worth, NTW.
Tenancy Period Extension OPTION
Lessors and Managing Agents of Commercial Properties may require the term of the Security Bond to extend past the Expiration of the Initial Lease Term.
Our Commercial Lease Bond underwriters caters for this contingency by offering the Tenancy Period Bond Extension Option which, if required, extends the term of the Security Bond for 90 days after the Expiration date of the Lease.
*A Surcharge of 0.2% to the Bond rate is applicable if this option is required (refer Page 6 on our Commercial Lease Bond underwriter's Application Form for details).
Frequently Asked Questions
How does a tenant get a Commercial Lease Bond?
The tenant applies for a bond using the standard application forms, including supporting documentation. Our Commercial Lease Bond underwriter reviews the tenant’s general business history, financial statements, capitalisation, and in some cases, business plan. Based upon this review, we issue a lease bond in exchange for the payment of a specified fee.
The landlord holds the lease bond, in the same way as the landlord would hold a letter of credit or bank guarantee.
What happens if the tenant breaches the lease agreement?
If the tenant fails to uphold the terms and conditions of their lease, the landlord may submit a claim against the bond, which is paid by the surety underwriter much like a draw made by the landlord would be paid by a bank under a letter of credit.
With a lease bond, the surety underwriter (and not the tenant) is liable to the landlord for the tenant’s breach of its lease.
The surety underwriter’s liability on the lease bond is strictly monetary; the surety underwriter is not required to physically perform the unfulfilled non-monetary obligations of the tenant.
For many tenants, the amount of the premium will be considerably less than the cost of posting and maintaining a letter of credit throughout the term of the lease. The premium will also usually be much better financial proposition for tenants than sacrificing working capital or other forms of security in order to post a cash security deposit.
The obligation secured by the lease bond is not treated as a contingent liability on the tenant’s financial statements; it is off-balance sheet. As a result, the tenant’s financial statements and borrowing capacity are much stronger.
What are the main benefits to Landlords?
For landlords, the primary benefit of a Commercial lease bond is that the credit of the surety underwriter, rather than the credit of the tenant secures the tenant’s financial performance of the lease. This gives much more security.
Since the lease bonds cost much less to establish and maintain than cash security deposits, tenants are much more likely and able to agree to substantial guarantees. This gives landlords much better protection.
Proceeds of lease bonds are not currently subject to the jurisdiction of bankruptcy courts. This further enhances the position of the landlord, whereas other forms of security may well be subject to control of that security being handed over to the bankruptcy trustee or Liquidator of the company.
Finally, because Commercial lease bonds tend to be much less expensive for tenants compared to the cost of posting and maintaining a letter of credit or cash security deposit, landlords have a much better opportunity to lease space to these tenants.
The ease of obtaining a Commercial Lease Equity Bond is one of its main attractions. Applications can be downloaded completed and faxed to our head office. Bonds will normally be issued within 24 - 48 hours. Please click here to send us your enquiry.