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Financing a Tenant’s FF&E – Economic Issues that Impact Landlords and Tenants

Articles, Leases

Tenants often need to finance furniture, fixtures and equipment (“FF&E”) that will be used at the premises. In order to do this, a tenant must grant its lender a first priority, perfected lien against the FF&E. A careful review of applicable commercial lease provisions is necessary to ensure that (i) tenant is not be prohibited from financing its FF&E, and (ii) landlord is not committing itself to a costly relationship with tenant’s lender.

Subordination of Liens

If the lease or a statute creates a landlord’s lien against tenant’s FF&E, the lease must be modified to either (i) subordinate the landlord’s lien to the lien of tenant’s lender, or (ii) terminate the landlord’s lien. The lease should also require landlord to sign lender required documents evidencing the waiver. Without these modifications, tenant may not be able to find a lender willing to finance its FF&E.

Landlord Waiver

As a condition to financing FF&E, lenders require landlords to execute an agreement referred to in the real estate industry as a “landlord waiver.” A landlord waiver agreement requires landlord to give the lender access to the premises after tenant’s default to remove the financed FF&E from the premises. Landlord should be wary of lease provisions requiring landlord to execute lender’s standard landlord waiver agreement. Instead, landlord can agree to a lease provision requiring it to execute a commercially reasonable landlord waiver agreement. With this provision in place, landlord can negotiate requirements for tenant’s lender to:

  1.   Pay past-due rent and rent until lender completes its removal of the FF&E.

2.   Remove FF&E within a specified period of time following tenant’s default under the lease.

3.   Indemnify landlord and provide insurance, naming the landlord as an additional insured.

4.   Repair damage caused by its entry and removal of the FF&E.

5.   Prohibit the lender’s sale or auction of the FF&E at the premises.

6.   Describe the FF&E in the landlord’s waiver


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Disclaimer: This article is provided by Angel Law Offices for general education purposes only.  The information should not be relied on as legal advice, nor does it serve to create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.