Bank guarantees are one of the most common features in leases
these days. Landlords are increasingly turning to bank guarantees
as an effective security to ensure tenants comply with their
obligations under the lease. However, care must be taken to ensure
the bank guarantee is effective and cannot be challenged by the
tenant or the bank upon its presentation by the landlord in the
event of default by the tenant.
We recommend the following requirements are complied with to
ensure that bank guarantees are correct and to reduce a
Australian Trading Bank – a bank guarantee should be
from an Australian Trading Bank with an Australian Trading Licence.
Otherwise you will have trouble claiming on a bank guarantee given
by an overseas bank with no offices in Australia.
The Favouree – a bank guarantee should clearly print
the full name of the landlord. The ACN for corporate landlords
should also be inserted.
Assignable – the bank guarantee should be assignable
if at all possible to allow the bank guarantee to be transferred to
a purchaser of the freehold.
The Customer – the person on whose behalf the bank
guarantee is issued must be clearly printed and identified. This
should be the tenant under the lease.
Expiry Date – preferably, a bank guarantee should
have no expiry date. Some banks have recently changed their
practices and require an expiry date to be inserted in bank
guarantees. If this is the case, then we recommend that the expiry
date of the bank guarantee be as long as possible after the expiry
date of the lease. This should hopefully cover any periods of make
good and redecoration of the premises by the tenant, any holding
over periods and the like.
Description – the purpose of the bank guarantee must
be clearly expressed. A bank guarantee given by the tenant to the
landlord should always cover all the tenant's obligations in
respect of the premises (which should be clearly described) and
ideally, as security for the obligations under any associated car
park licence or incentive document.
Guaranteed Amount – the correct amount (both in words
and numbers) should be clearly printed.
A bank guarantee should provide an 'unconditional
undertaking' by the issuing bank to pay the guaranteed amount
in the bank guarantee to the landlord if demanded. It should not be
We recommend that you have us review the terms of any bank
guarantee prior to accepting it to avoid problems with making a
claim under it.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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