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Bank Guarantee under Leases – Franchisors Beware

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Westfield have recently advised a number of retail franchisors that Westfield will no longer accept bank guarantees from franchisees for new retail leases where the head lease is held by the franchisor. There are also unconfirmed reports that one or more of the other major shopping centre landlords may be about to follow suit. This is contrary to the long established practice of landlords accepting a bank guarantee directly from the franchisee in satisfaction of the security requirements under the lease. Existing leases which contain a clause requiring the landlord to accept the bank guarantee from the franchisee will not be affected. However, franchisors who hold the head lease over premises should be extremely careful in negotiating new leases to ensure that the lease allows for the bank guarantee to be provided by the franchisee. We will continue to monitor this issue and will advise as more information becomes available.