bank guarantees

Your landlord may want a bank guarantee or a security deposit if you are buying or selling a business with leased premises. A bank guarantee is a pledge to pay a third party to secure a lease or purchase of real estate. You may be asking how to provide or reclaim your bank guarantee whether you are an incoming or leaving renter. This article explains the most important factors to consider when providing or recovering a bank guarantee.

What is a Bank Guarantee?

A bank guarantee is a commitment by a bank to pay a third party on demand, depending on the occurrence of a certain event or condition. For example, you can utilize a bank guarantee to guarantee payment to your landlord in order to ensure your lease responsibilities.

Details of a bank guarantee:

  • the name of the person who is being favored. The landlord is the beneficiary in this scenario.
  • if appropriate, the favouree’s Company Number (CN) or Business Number (BN);
  • the guarantee’s justification;
  • the guarantee’s total value; and
  • When will the guarantee expire? A landlord will usually ask that there be no expiration date or that it be at least three to six months after the lease expires.

The sort of entity that can lawfully be the beneficiary of a bank guarantee is defined by rules. If the favoree is a trust, you’ll need the trustee’s information before a bank will provide you a guarantee. In a partnership, you’ll also need the contact information for both partners.

If you’re buying a firm, you could require a bank guarantee for a lease security deposit. You may also require a guarantee for the following reasons:

  • buying property off the plan; or
  • providing a contract performance guarantee.

When your responsibility to the favoree expires, your guarantee usually expires as well. If your lease contains options, you should tell your bank so that your landlord can extend the guarantee if you want to exercise them.

Guarantee and setup costs are charged by each bank. Check with your bank to see how this will be charged to your account.

How Does a Buyer Provide a Bank Guarantee?

As a buyer, you must supply the bank with accurate information in order for them to offer you a guarantee. Check your lease before heading to the bank to determine what you need to put in the bank guarantee. You should also check with your landlord’s lawyer about what to include. This is due to the fact that the bank guarantee must be precise and detailed. If the bank guarantee specifies a sum equal to three months’ rent plus GST, for example, you must provide that amount.

Your bank may wish to review your lease to confirm that the guarantee meets the lease’s criteria.

It is critical that the promise is written correctly. Your bank guarantee may be void if you fail to do so. This might add to the time it takes for you to be able to move in. It’s important to keep in mind that processing your guarantee might take up to two weeks. As a result, you should begin the procedure as soon as possible to avoid any delays in settlement.

How Does a Seller Recover a Bank Guarantee?

When the buyer has produced their bank guarantee, the landlord will usually return yours. They will only do so if you have met all of your lease requirements up until the buyer takes over the lease. You must, for example, pay your rent and outgoings and maintain the property in good repair.

It is important you follow up with your landlord to ensure they return the bank guarantee to you within a reasonable timeframe. Once the landlord has returned your guarantee, you can go to the bank with the original guarantee for them to cancel it. Alternatively, the landlord can confirm with the bank that they no longer require the guarantee and provide the bank with their signature. This will also cancel the bank guarantee.

Key Takeaways

To give or reclaim a bank guarantee, you must follow the proper procedure. You should be as specific as possible in your phrasing and the information you provide to your bank. Check your lease before going to the bank and requesting a guarantee. You should also consult an attorney who can explain the essential provisions of your bank guarantee and how to get your landlord to repay it. If you have any queries, fill out the form on this page to speak with one of Finance-Opinion’s company sale and acquisition lawyers.

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