Last month I wrote an article for the blog on the reasons why commercial landlords should prefer letters of credit over cash for the security deposits from their tenants. This has become especially true in today’s economy, with so many businesses that are having trouble staying afloat.
The problem with a cash security deposit posted by a tenant under a lease is that it is considered to be property of the tenant’s estate in bankruptcy proceedings, so the funds are subject to the automatic stay provisions of the Bankruptcy Code. That means that if the tenant files for bankruptcy, the deposit will not be able to be accessed by the landlord without court approval, and often times the court will not allow access at all.
To learn more about how landlords are using letters of credit in order to avoid this risk, click below to watch my new video on the topic and scroll down to read my article posted on August 15.