In these volatile economic times, what security should prudent landlords get to assist in recovery in the event of insolvency or other lease defaults by tenants? Landlords should consider irrevocable letters of credit (“LCs”) issued in their favour by Canadian financial institutions. LCs are NOT letters of guarantee. Guarantees have defences to payment. LCs do not. LCs are issued by financial institutions at the request of their tenant customers. An LC is a contract between the financial institution and the landlord as beneficiary, separate and apart from any lease. It is not a tenant asset. The financial institution does not examine the default or breach of the lease. Instead it pays the landlord, as beneficiary, if the landlord provides the required draw request and supporting documents specified in the LC. Therefore, make sure when drafting the LC that the required documents are entirely within the landlord’s ability to produce. Financial institutions will obtain security for payment from their tenant customers and charge a standby fee. As such, there is a cost to tenants. However, the cost may be considerably less than cash security. LCs provide a commercially acceptable method to ensure payment. Your thoughts?