Last Updated May 14, 2019

Law and Practice

Contributed By McGuireWoods LLP

Authors



McGuireWoods LLP has a diverse real estate practice of more than 80 lawyers and land use planners in its offices in Tysons, Charlottesville, Richmond and Norfolk, with skills in a wide range of traditional and non-traditional real estate transactions. The firm’s transactional representation spans all aspects of real estate acquisition, development, financing and disposition, including acquisition, sale, leasing and financing transactions, as well as project finance, construction, public-private partnerships, negotiation of local and state incentives and privatization transactions. The team respresents clients around the world on various sides of such transactions, including Fortune 500 companies. The transactional practice is complemented by the firm’s land use expertise, as it frequently handles zoning and land use matters for development projects.

The most common form of security in a commercial lease is a cash security deposit. The amount of the deposit is negotiable and will depend on the credit of the tenant, the length and nature of the lease, the amount (if any) invested by the landlord in the space, and other factors. Deposits equal to one or two months of rent are common, although for large, credit tenants it is common for the deposit to be waived altogether. Landlords under commercial leases are typically permitted to comingle the deposit with other funds, and are not required to hold the deposit in a separate account. Deposits typically do not accrue interest. When a landlord is required to utilize any portion of a deposit, the tenant is often required to immediately restore the deposit to its full amount.

Security deposits may also be in the form of a letter of credit. Landlords typically require approval of the issuing bank and the form of the letter of credit, which can be heavily negotiated. In some cases, the parties may negotiate for the letter of credit to be reduced or returned to the tenant upon certain occasions (eg, the passage of time without a default, etc). Alternatively, the tenant may have the right to convert the deposit to cash.

Another form of security is a parent guaranty or personal guaranty, often issued by a parent company of the tenant, or a personal stakeholder in the tenant.

Finally, although less frequently required, some landlords may require additional security in the form of a lien on the tenant’s fixtures, furnishings, equipment and other personal property, which may be perfected by the filing of a UCC-1 financing statement. Also, landlords sometimes reserve the right to require additional or separate security in specific instances (for example, the posting of a bond or additional security before permitting a material alteration).

McGuireWoods LLP

1750 Tysons Boulevard
Suite 1800
Tysons, VA 22102-4215

+1 703 712 5000

+1 703 712 5050

info@mcguirewoods.com www.mcguirewoods.com
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Authors



McGuireWoods LLP has a diverse real estate practice of more than 80 lawyers and land use planners in its offices in Tysons, Charlottesville, Richmond and Norfolk, with skills in a wide range of traditional and non-traditional real estate transactions. The firm’s transactional representation spans all aspects of real estate acquisition, development, financing and disposition, including acquisition, sale, leasing and financing transactions, as well as project finance, construction, public-private partnerships, negotiation of local and state incentives and privatization transactions. The team respresents clients around the world on various sides of such transactions, including Fortune 500 companies. The transactional practice is complemented by the firm’s land use expertise, as it frequently handles zoning and land use matters for development projects.

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