Canberra Hotel Sales: Dealing With Lease Bonds and Bank Guarantees

When selling a Canberra hotel business occupying leased premises, identify the security supporting that lease early. Cash bonds, bank guarantees and personal guarantees can create different questions for the seller and purchaser.

The sale information should explain what exists, which obligations it supports and what needs to happen before the seller’s arrangements are released.

Identify Each Form of Security

Prepare a schedule recording the tenant, landlord, security provider and relevant agreement.

Distinguish cash paid to the landlord from a bank guarantee and any personal guarantee. Include the stated amount, document date and any expiry date or other conditions.

NAB describes a bank guarantee as an alternative to providing a cash deposit directly to a beneficiary, such as a landlord.

Keep the original documents secure and provide copies through the controlled review process.

Check the Applicable Lease Rules

Have the solicitor confirm whether the ACT’s Leases (Commercial and Retail) Act applies to the particular lease and transaction.

The Act contains provisions dealing with bonds and guarantees. Its application should be assessed before making assumptions about the arrangement.

Review the executed lease, variations and security documents together. An amount shown in the business accounts may not explain all the obligations contained in the documents.

Identify any discrepancy for adviser review before settlement figures are prepared.

Confirm What the Landlord Requires

Establish whether the incoming operator must provide replacement security and how that requirement will be documented.

Avoid assuming that changing the tenant’s name in sale paperwork also changes a bank’s undertaking or releases an outgoing guarantor.

Have the relevant parties confirm the required consents, documents and timing. The purchaser should understand any funding or banking arrangements it needs to complete.

A clear schedule helps prevent the security issue becoming an unresolved settlement task.

Track Release and Cancellation Separately

Landlord consent to the transaction, release of the seller’s obligations and cancellation of a bank guarantee need their own confirmation.

NAB provides procedures for amending and cancelling guarantees, including requirements concerning original documents.

Follow the issuing bank’s process. Do not assume a guarantee has ended simply because the hotel business has changed hands or the seller has requested cancellation.

Keep written evidence of the agreed release and the bank’s confirmation.

Is a Cash Bond an Ordinary Sale Adjustment?

Its treatment should be agreed and documented.

Ask advisers to reconcile the amount held, any permitted deductions and the proposed refund, replacement or adjustment. Avoid counting the same security twice in the settlement statement.

Where personal guarantees are also involved, obtain specific advice on the outgoing parties’ position.

Complete handover records should identify the security continuing with the buyer and arrangements that have been formally released.

Discuss Your Canberra Hotel Business Sale

Speak with Norton’s Real Estate and its Norton’s Resort Brokers division about preparing your hotel business’s lease information, supporting records and sale presentation.

Steven Norton: 0488 496 277
Lawrence Norton: 0415 279 807
Email: nortons.re@gmail.com

Disclaimer: This article provides general information only and is not legal, financial, tax or valuation advice. Details depend on the property, business, agreements and applicable requirements. Readers should verify information and obtain independent professional advice. Norton’s Real Estate does not guarantee future income, value or sale outcomes.