What is a landlord waiver? Definition of a landlord waiver.
Why are landlord waivers required for business loans?
December 9, 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 cannot legally enter repossess collateral. 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.
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Why do I need to get a Landlord waiver?
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 to pick up the collateral. They also 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 on this asset based loan lenders do not want to contact 10 different landlords. Each landlord would have to agree to an on site repossession. The landlords know if they agree, those business that leases space from them may go out of business.
The landlord does not want the lessee to go out of business. The landlord may want to deny the request.
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.