Business Law Articles
By Ynze Kliphuis, LL.M.
Russell Advocaten B.V.
Banks can no longer recover the amount they guarantee via a bank guarantee from the estate in the event the lessor goes bankrupt. What are the consequences for lessors and lessees?
The Bank Guarantee as a Form of Security
In lease agreements, the lessee usually provides a security for fulfilling his obligations against the lessor. In commercial leases, bank guarantees are commonly used. A bank guarantee is an agreement between the bank and the lessor. The lessee does not pay? In this event the bank will pay the lessor’s claim. The bank providing the bank guarantee requests a counter-guarantee from the lessee which requires the lessee to repay the amount the bank has paid arising from the bank guarantee.
The Lessee is Bankrupt - How About the Bank Guarantee?
If a lessee goes bankrupt, the lease becomes an estate debt that will be paid with priority. However, the trustee in bankruptcy and the lessor are entitled to terminate the lease in the interim. In this case, the lessor is often left with damage resulting from vacancy, which the lessee will have to compensate according to the lease agreement. For this, the lessor can use the bank guarantee. As a result of the developments in case law, lessors will derive no longer much security from the bank guarantee after a bankruptcy of the lessee.
In 2013, the Supreme Court decided that the estate may not be harmed by executing a bank guarantee, for instance by a claim on the counter-guarantee. Afterwards, banks modified the content of the bank guarantee in such a way that they do not have to pay the bank guarantee in case they cannot claim the amount under the counter-guarantee.
If the trustee in bankruptcy did not defend himself against the bank’s claim on the counter-guarantee, the trustee in bankruptcy was able to reclaim the amount paid by the bank and collected from the estate of the lessor. This path has now also been blocked by the Supreme Court. The trustee in bankruptcy will have to recover his claim from the bank. As a result the banks – as they do no longer have the opportunity to recover the counter-guarantee from the estate – will once more adjust the existing bank guarantees.
When the bank guarantee depends on obtaining the counter-guarantee, the lessor will have to “simply” submit a claim for the damage as a result of vacancy to the trustee in bankruptcy. The question is whether this damage will ever be (fully) compensated. In contrast to the lease, this claim will not be paid with priority.
And What Now?
The wording of the bank guarantee is another issue to be discussed between lessee and lessor. Lessors will not want the bank guarantee to be dependent on the counter-guarantee of the (estate of the) lessee, whereas banks and lessees do not want to be left with damage or liability after the bankruptcy of the lessee.
A guarantee deposit paid to the lessor will provide the most security for the lessor. However, the question is whether the lessee is willing to make such a payment as he will lose he deposit in the event the lessor goes bankrupt.
Would you like to learn more about bank guarantees or other forms of securities, for instance, about the amount of the guarantee deposit and its repayment? Or do you have any other questions about lease agreements? Please contact us.