04.22.2020 | Articles

Why Do We Care About Landlord Waivers?

By Brian F. Plunkett
Estate Planning

Landlord waivers are a useful tool for minimizing cost and maximizing speed of recovery of assets or access to a Tenant’s (the borrower) books and records.  In representing lenders providing C&I loans, we care about getting landlord waivers for locations leased by a borrower as tenant where the borrower may have significant inventory or equipment or where their key financial records are kept.

A landlord waiver creates an agreement between the landlord and the lender (in legal terms, “privity of contract”) so that a lender has contractual access to the leased property upon an event of default under a borrower’s loan and so there is no confusion as to which party (the lender) has a security interest in the tenant’s inventory and equipment.  While not applicable to Massachusetts, many states grant statutory liens to a landlord covering the assets of a borrower securing unpaid amounts under leases.  It is important to subordinate such liens to the security interest of a lender. 

Without a landlord waiver, if a lender seeks recovery of its assets on a defaulted loan, the lender must first go into court and seek an injunction to enforce its security interest.  This results in added time and added cost to the lender.  If the loan is under-collateralized, this cost will be borne by the lender.  Since the last recession, landlords have been negotiating the form of waivers more heavily.  The most important points in negotiating landlord waivers involve maintaining sufficient time periods for recovery of assets, potential on-site sales of heavy machinery and not agreeing to involuntary terminations of the lender’s security interest. 

As always, please contact us if you have questions on this or any other lending or business topic.

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