Ensuring Protection Of The Landlord's Interests: Bank Guarantees or Cash Security Bonds?
It is important for Landlords and their solicitors to understand how to best protect the Landlord’s interests, particularly when it comes to the options of cash security bonds or bank guarantees.
Where a tenant provides a cash security bond in lieu of a bank guarantee to secure its obligations under a lease, this creates a “security interest” in favour of the Landlord under the Personal Property Securities Act 2009. In order to properly perfect this security interest, Landlords must register their interest on the Personal Property Securities Register (the “PPSR”). Failing to do so will run the risk of that interest being defeated by a liquidator in the winding up of the tenant, and the cash bond being rendered useless to the landlord (right at the time when it would be most needed).
Without the protection of a registered security interest on the PPSR, a Landlord holds no greater standing than any other unsecured creditor, and any claim made by the Landlord on a cash bond may amount to a preferential payment, and could thus be defeated in the insolvency of the tenant.
It is therefore important for Landlords to keep the following in mind:
- A bank guarantee is generally the preferred form of security under a lease;
- However, where a cash bond is held, the Landlord should register their interest on the PPSR to perfect their interest; and
- To enjoy maximum protection, registration on the PPSR must take place within the prescribed time periods and must properly describe the security interest.
For information and advice regarding leasing or registration of security interests, please contact partner, Liam McLindin.