Bank Guarantee & minimum public liability insurance

What's usually the standard length for a bank guarantee, is the minimum usually 6 months? Is 3 month's too short to have in the lease? Also is the industry standard now $20mil of public liability insurance that a tenant needs to take out?

 

Bank guarantee without expiry date (you don't want it to expire if the tenant remains on holdover.

PL depends on risk, user and location. $5-10m in country town or no plant/no external work etc, $20m for cities/burbs, $250m within/adjacent to rail corridor.

 

Ok thanks. For bank guarantee, I meant how many month's rent would be standard. Would 6 month's rent be standard and 3 month's rent be too little?

 

‹3 yrs minimum of 2 months + personal guarantees

3 <= 5 yrs generally 3 months + personal guarantees

> 5 yrs as above + 1st born

 

Haha ok thanks. So for a 10yr lease, a 6 month's bank guarantee + personal guarantees seem very fair.

 

@thesuperman - that would depend upon the property (how hard to re-lease) and the size of the incentive given away eg 12 month rent abatement.

 

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Only in certain circumstances, eg:

• Not prohibited under retail leases
• Included as a nominated outgoing in the lease

The tenant should be paying the regular inspection and certification of essential services for anything above base building requirements. Whether they pay the annual registration fee ($70 PA) is negotiable.

 

Institutional Landlords will seek a minimum of 3 months with director's personal guarantee and request a minimum of $20M PLI. This will also dependent on the strength of the financial position of the company (i.e not a $2 shell company) and the business plans. They will forgo the BG/guarantee depending on who the tenant is such as large companies (think Cotton On/McDonald's etc).

Sometimes, tenants refuse to give a personal guarantee, then the Landlord will ask for a larger BG in the event that the company defaults.


Also check the State Retail Leases Act, as some states do not allow anything more than a 3mth BG

 

Hi

I am finding $20m public liability insurance to be common in the Melbourne suburbs.

Yes at least 3 months bank guarantee and a personal guarantee if possible is good, however you won't get a personal guarantee if your tenant is a public company such as Flight Centre.

I always ask for a 6 month bank guarantee to begin with and let the potential tenant negotiate it down to 3 months if they ask and at this stage of the negotiations you may find out the financial capacity of your new tenant as well.

If the tenant is utilising all of their capital to an elaborate and expensive fitout in a property that you own it can work in your favour to let the tenant provide the bank guarantee once they start trading, this allows your shop to get the best fitout possible without the tenant cutting any corners which is better than a less than average fitout because the tenant had to cut corners on everything.

Regards,

alicudi