Rent Guarantees are Third Party Guarantees that provide the Security that a Landlord requires without the need to block very large Cash Deposits. These Deposits will impact quite severely on Cash Flow and Credit Lines. When a Rent Guarantee is used, the need to set aside Cash is normally avoided. In a fairly recent case, a Start-Up Company decided that for Sustained Growth the Company needed more space. While negotiating the Terms with the Landlord’s Agents for ideal premises, negotiations were stalled when the Agents requested a Cash Deposit equal to Six Months’ Rent. The reason given for the amount being Six Months was the short amount of time the Company had been Trading. Unable to provide Three Years of Audited Accounts, it seemed unlikely that the Landlord would be able to find comfort in Letting the Prime Location without the Surety of a weighty Cash Deposit. Credit Lines at the Bank were realistic and the Directors did not want to overextend at a time of growth. It was the Agency for Local Business Development that suggested a Rent Guarantee might be the answer and recommended CHJ Management. The Company found that for a Fee, a Third Party Surety or Guarantee Company could provide Comfort to a Landlord (Beneficiary of the Bond) in the case of a Missed Payment of the Monthly Rent, the unexpected Departure or Financial Failure of the Tenant (Client of the Bond). CHJ Management arranged the Rent Guarantee, the Guarantee Company required a Binding Counter Indemnity, but the Process was Uncomplicated. Having an Offer from the Guarantee Company, the Prospective Tenants (the Clients of the Bond) returned to the Letting Agency. The Landlord (Beneficiary of the Bond), wishing to have the premises occupied by viable Tenants (the Clients of the Bond) was prepared to conduct the necessary Due Diligence and found the Guarantee acceptable and fit for purpose and the Letting was agreed. For the informed Entrepreneur, this may well be a clever way of protecting Credit Lines and improving Cash Flow. For the Landlord (Beneficiary of the Bond) this is a way of obtaining extra Comfort. The Type of Bond or Guarantee was a Conditional Performance Bond designed for the purpose of Rent Guarantee. It obliges Payment in the case of a proven Breach of an Agreement, but is less open to abuse than the punitive On Demand Type of Guarantee, which a General Consensus agrees should be avoided.

  • Rent Guarantees are there to support the Rent Per Annum due from the Tenant to the Landlord and to replace the need for Tenants to place a Rent Deposit with the Landlord.
  • The Landlord decides the size of the Rent Guarantee.
  • Each Rent Guarantee has a set Value and is in place for specific amount of time.
  • Under the Rent Guarantee, the Landlord can only claim for Rent that is unpaid by the Tenant. If the Rental Monies are due each month, and Three Consecutive Months are unpaid by the Tenant, the Landlord will have to make Three Consecutive Claims (one a month) in order to recover the Outstanding Rental sums from the Guarantor.
  • The Landlord can continue to make claims until the Guarantee sum has been reached
  • On Guarantees that are in place for more than a Year – for example 3 Years – a Review will take place at the end of the initial Guarantee Period and the Guarantee will then be Extended for a further Period unless there has been a Call on the Guarantee. A New Fee will be due at the Review.

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