Why are landlord waivers required for business loans
June 23, 2017. Landlord waivers are often required for business loans. In many cases the need for a landlord waiver is questioned by the borrower. Why do lenders require landlord waivers for many business loans?
Lenders require landlord waivers to avoid or minimize losses when a business defaults. Many business loans include collateral that is on the premises of the borrower. The landlord waiver allows the lender to enter the property and obtain the collateral in the event of a default. If the lender did not have a signed landlord waiver, they could not enter the place of business of the borrower to take their collateral.
Without the landlord waiver, the lender might not legally be able to enter the business by law. The owner of the property could potentially seek recourse against any lender. entering the premises without their permission. There are some business loans in which a lender asks for a landlord waiver but do not consider it critical for the loan. A lender normally considers a landlord waiver absolutely critical if they ask for it and will not fund a transaction without the waiver. Lenders worry that a Landlord will refuse to allow them on the business property. If this happens, the lender may not be able to recover their collateral if there is a default.
In the vending industry, lenders that finance multiple vending machines will not fund transactions without all of the required landlord waivers. Lenders that finance vending machines know that if they finance 10 vending machines, those 10 machines may be in 10 different locations throughout a metropolitan area. If the borrower defaults, the lender would have to go to 10 locations with truck over a wide geographical area to pick up the collateral. They cannot simply show up at a place of business to pick up collateral. They have to have permission from the owner of the property because they will be uninstalling equipment, which is considered making a change to a property. The lessee agrees in the lease not to make a change in the property without the permission of the landlord, so the lessee is obligated to contact the landlord.
In the event of a default in which the lender does want to get the collateral, the last thing the lender wants to do is at that time is contact 10 different landlords and hope they all agree to an on site repossession. The landlord knows if they allow that to occur, the business that leases space from them and from whom they receive rent may go out of business.
The landlord does not want the lessee to go out of business, much less go out of business in an abrupt fashion. In such an instance the landlord would greatly prefer to deny the request if the feel they can do so.
These are the reasons why lenders will ask for and obtain a landlord waiver when a business loan is first closed.
The SBA offers info on working with and negotiating with landlords.