Typically, a tenant's bank guarantee is drawn in favour of
the landlord pursuant to the lease, and it is the landlord who
demands payment under the bank guarantee in circumstances of tenant
Where a property is transferred to a new owner, that party
sometimes has difficulty obtaining a bank guarantee from the tenant
in favour of the new owner, or in some circumstances may overlook
the need to get a bank guarantee in its favour. In such
circumstances the new owner will retain the bank guarantee drawn in
favour of the previous owner.
The contract for sale of a tenanted property often includes a
provision requiring the seller to claim on the bank guarantee
(where a tenant is in default) for the benefit of the new owner
where a bank guarantee in favour of the new owner has not been
provided after settlement of the sale.
Accordingly, tenants may receive notice of claims being made on
their bank guarantee by a party who is no longer the owner/landlord
and for a breach that occurred post the date of transfer by the
Bank guarantees are generally by their nature drafted
unconditionally and do not require or allow the bank to look behind
the claim so the bank would likely pay the claim out to the former
owner without query.
It may be open to a tenant to argue in such cases that,
depending on the terms of the lease, the former owner has no
entitlement to claim on the bank guarantee and in doing so is in
breach of a negative stipulation in the lease (ie not to call upon
the bank guarantee) and possibly acting in breach of relevant
The Federal Court is to consider this issue in the matter of
Sensis Pty Ltd v Bivami Pty Ltd.
In the meantime, it remains advisable for landlords to ensure
bank guarantees are drawn in their favour to avoid this possible
argument, and for tenants on the other hand to seek advice if a
bank guarantee has been or is to be claimed upon by a party for a
loss in fact suffered by another party, for example, the new
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