A Letter of Credit – LC or LOC, also referred to as a standby letter of credit, is a one or two page document issued by a financial institution (bank) that guarantees payment to the beneficiary (landlord) upon full compliance with the conditions specified in the LOC and when the proper documentation is provided. The payment guarantee would apply when a tenant fails to fulfill the contractual (lease) requirements with the landlord. A tenant’s non-payment of rent or default during the landlord’s investment in the premises (tenant construction improvement project) are examples of a tenant’s breach of their contractual requirements. The letter of credit provides secured collateral from the tenant’s bank that is granted to the landlord should the tenant default in its lease obligations.
Download the rest of the article in PDF format – Letter of Credit