Page 17 - June 2018 Disruption Report Flip Book

Bank guarantees are commonly used by prospective tenants to secure commercial property leases in lieu of a cash deposit or rental bond.
to review and negotiate the terms and conditions of a guarantee, which can vary by bank and by landlord.
A shared ledger, which could be relied on as the single source of truth for the existence and status of a bank
For tenants, they allow for more flexibility in securing
BLOCKCHAIN ADOPTION their lease obligations as an alternative to cash. J A NJ U U NA ER Y 2 0 2 1 0 8 1 8
guarantee, could resolve the first two challenges, whil
For commercial landlords, they provide the certainty of a financial institution in the event of the tenant’s default (e.g. where they fail to pay rent or make good1 upon vacating a property), while also avoiding the
administrative burden of managing cash deposits and
acting as a catalyst for the third.
In an ecosystem where three parties (i.e. the tenant,
the bank, and the landlord) participate in the creation,
management and expiry of a common instrument, a
blockchain solution could provide the optimal medium
trust accounts.
for facilitating the necessary flow of information, while
commercial property leasing, eliminating the need for physical document
management of guarantee documents and addressing other inefficiencies in
In fact, such is the benefit to landlords, that many
t h e c u r r e n t b a n k g u a r a n t e e p r o c e s s , i n c l u d i n g c o t hn f e i d c e h n a t i l a l e l i nt y g . e s i n t r a c k i n g a n d
embed the requirement for a bank guarantee in their
standard form rleapsoertainggreoefmaengtu.arantee’s status through multiple changes.
But while a useful financial instrument, today’s bank ?
WHAT IS A BANK
The companies involved in the trial released a whit
guarantees are paper-based, and their physical nature GUARANTEE? gives rise to a tnhuemsboelrutoiof ninewfoficrkiendciaesn.dThoeswe iitncoluudled:be used in other situations that rely on
1
“An update of the decades-old process for issuing, tracking and claiming
on guarantees is long overdue, said Scentre CFO Mark Bloom. “With approximately 11,500 retailers across Australia and New Zealand, who use guarantees to support rental obligations, manual tracking of guarantees has been an extremely cumbersome and labor intensive process.”
“We have been keen to avoid the hype surrounding blockchain and distributed ledger technologies, and instead focused on practical and deliverable use
An independent undertaking by a bank, on b a n k g u a r a n t e e s . T h i s w h i t e p a p e r i s p a r t o f a b r o b e a h d a e l r f o p f l a i t n s t c o u s b t u o i ml d e a r , s t h o a p r a e y d a n a m e d
 Physical Document Management: costs, risks
and delaysoaslustoiocinatwedithwitthethfienapnhcyisaicl asleprrviincteinsgi,ndustry, and to invite other organizations
issuing, exchanging, retrieval and potential loss of
beneficiary in the event the customer fails to fulfil their contractual obligations with that beneficiary. Crucially, the obligation to pay is unconditional, and can be made on presentation of a simple claim / demand by the beneficiary, without regard to the customer’s performance or
to participate in a larger pilot.
guarantee documents;
CONCEPT MAP FOR BANK GUARANTEES IN COMMERCIAL
non-performance of the underlying contract.
Figure 1: Simple concept map for bank guarantees in commercial property leasing
PROPERTY LEASING
balancing the competing needs of transparency and
epaper detailing how
Security 1
Lease
Guarantee
(Certainty of 3 Payment)
4
Landlord
(beneficiary)
Bank
(guarantor)
Tenant
(applicant)
25
Guarantee
Guarantee Claim (on tenant default)
Source: TrSource: Distributed Ledger Technology and Bank Guarantees for Commercial Property Leasing 1 The need to “make good” is a standard clause
included in most commercial leases, which requires tenants to return the property to its original state.
© 2018 by Canfield Press, LLC. All rights reserved.
www.canfieldpress.com 17
e