A landlord waiver, also called a collateral access agreement or landlord consent, is a signed agreement in which the landlord of premises where a borrower keeps collateral agrees that the lender's lien on that collateral comes ahead of any lien the landlord has, and lets the lender enter the premises to inspect, remove or sell the collateral after a default, usually for a limited period during which the lender pays rent. Asset-based and equipment lenders ask for one at each leased location holding material collateral. If the landlord refuses, the lender typically holds back a rent reserve from availability or treats the collateral there as ineligible.
- Also called
- Collateral access agreement, landlord consent, landlord lien waiver
- What the landlord agrees
- Its lien ranks behind the lender's, and the lender may enter to remove or sell collateral
- Who asks for it
- Asset-based lenders, equipment lenders, and many SBA and bank lenders with collateral in leased space
- If the landlord refuses
- A rent reserve against availability, or collateral at that site excluded from the borrowing base
- Related documents
- Warehouse and bailee letters, processor agreements, mortgagee waivers
Why a lender cares about your landlord
A lender with a lien on inventory and equipment has a claim on those assets. It does not have a key to the building. If the business fails, the lender needs two things from the premises where its collateral sits: that nobody else has a better claim on the collateral, and that it can get in to take the collateral out or sell it in place. The landlord threatens both.
- Landlord's liens. In some states a landlord has a statutory lien on a tenant's property on the premises for unpaid rent, and some states allow a landlord to seize and hold property for rent owed. Many commercial leases also grant the landlord a contractual security interest in the tenant's property. Depending on the state and the timing, those claims can rank ahead of the lender.
- Control of the premises. A business that defaults on its loan has often defaulted on its rent too. A landlord that terminates the lease and changes the locks can keep the lender out while the collateral sits inside, losing value.
- Fixtures. Equipment bolted to the building can become a fixture, and the landlord may claim it belongs with the real estate. Removal can also damage the premises, which the landlord will want paid for.
The landlord waiver answers each of those. It is the premises equivalent of a subordination agreement: the landlord steps behind the lender on the collateral and agrees to let the lender in. It does not affect the landlord's rights to the rent or to the building.
What the agreement says, and what each side wants
Most landlord waivers are short, and the negotiation turns on a handful of points. The lender's first draft and the landlord's usual pushback look like this:
| Point | Lender asks for | Landlord usually wants |
|---|---|---|
| Landlord's lien | A full waiver, or subordination to the lender, of any lien on the collateral | Subordination only, and only for the lender's collateral, not all tenant property |
| Fixtures | Acknowledgment that the collateral is personal property, not part of the real estate | Carve-outs for building systems and improvements the landlord paid for |
| Access after default | A right to enter, remove or sell the collateral in place, over a reasonable period | A defined period, advance notice and supervised access |
| Rent during access | Pay rent only for the days it actually occupies the premises | Rent for the whole access period, and the tenant's arrears not waived |
| Damage | Repair only damage the lender causes in removal | Repair of all removal damage, with an indemnity and insurance |
| Notice of default | Notice of any lease default, with a chance to cure | No obligation to notify, or notice only of termination |
| Lease changes | Notice before the lease is terminated or materially amended | Freedom to deal with its tenant without the lender's involvement |
The access period and rent are where most of the money is. A lender liquidating inventory needs time to hold a sale; a landlord wants its space back and paid for. Most signed waivers land on a set period of access after notice, with the lender paying rent for the time it actually uses the space. The tenant's back rent remains the tenant's problem, not the lender's.
When the landlord will not sign
Landlords are not obliged to sign, and many do not respond quickly or at all. Large institutional owners have legal departments with their own forms and fees; small landlords sometimes see no reason to help. The lender still has its lien; what it lacks is certainty about the landlord. It prices that uncertainty into availability in one of two ways.
A distributor keeps inventory in two leased warehouses. The landlord at the first signs; the landlord at the second does not. The second warehouse holds inventory of 400 at cost, which would add 200 to the borrowing base, and its rent is 25 a month.
| Waiver signed | Rent reserve instead | Location made ineligible | |
|---|---|---|---|
| Borrowing base before this location | 1,000 | 1,000 | 1,000 |
| Inventory availability at the second warehouse | 200 | 200 | 0 |
| Less: rent reserve for the unsigned location | 0 | (75) | 0 |
| Borrowing base | 1,200 | 1,125 | 1,000 |
The rent reserve is the more common answer. The lender holds back an amount of availability equal to a number of months' rent at the unsigned location, on the logic that it could pay the landlord that much to get access in a liquidation. For a location with little collateral, making it ineligible costs little; for the main warehouse, it can cost more than the reserve. See availability reserve and why your lender added a reserve.
Equipment lenders face a different choice, because equipment cannot be reserved against in the same way. A lender financing a machine installed in leased space may lend less against it, price the risk, take additional collateral, or decline. Mobile equipment, such as vehicles and rolling stock, raises the landlord question less, because it does not live on the landlord's premises.
A missing landlord waiver rarely kills a line. It shrinks it, by a reserve or an ineligible location, until the landlord signs.
Related agreements for collateral you don't keep at home
The same problem arises wherever collateral sits on someone else's property. Each has its own document, and asset-based lenders ask for them location by location during the field exam:
- Warehouse or bailee letters for inventory held at a third-party warehouse. Public warehouses can have their own liens for storage charges and may issue warehouse receipts that affect how the lender perfects its lien.
- Processor and consignee agreements for goods sent out for finishing, packaging or sale on consignment.
- Mortgagee waivers where the business owns its building but has a mortgage on it. The mortgage lender's claim on fixtures can overlap with the equipment or asset-based lender's lien. See intercreditor agreement.
- Affiliated landlords. Where the owner holds the building in a separate company and leases it to the business, the owner's company will be asked for the waiver. It is one of the easier ones to get. See propco and opco structures.
Inventory at locations the lender does not know about is typically ineligible. A current list of every place where inventory or equipment sits, with who owns or controls it, is a standard request at the start of any asset-based financing.
Getting it signed
The fastest route to a signed waiver is the lease itself. A lease that obliges the landlord to sign a collateral access agreement in reasonable form when the tenant's lender asks turns a favor into an obligation. Tenants negotiating a new lease or renewal should ask for that clause as a matter of course.
- Ask early. Send the lender's form to the landlord as soon as the term sheet is signed, not at closing.
- Expect to pay the landlord's legal costs. Most landlords ask, and it is usually cheaper than the reserve.
- Offer the landlord's form. If the landlord has a standard document, the lender may accept it with limited changes.
- Agree a post-closing deadline. Where a waiver will not be ready at closing, lenders often accept a deadline after closing, with the reserve in place until it arrives. Make sure the deadline is realistic; missing it can be a default.
- In an acquisition, request the waiver alongside the landlord's consent to the lease assignment, in the same package. See why the lease matters when you finance a business purchase.
Many SBA and conventional bank lenders ask for landlord waivers when the equipment or inventory securing their loan sits in leased space, alongside the lease itself. Among the 1,800+ lenders in Transparent's book, the 235 writing asset-based loans and lines and the 244 writing equipment are the ones for whom a landlord waiver changes the numbers. Transparent's lender package lists each location, what collateral sits there and whether it is leased, so the landlord question is priced into the term sheets rather than discovered at closing. See machinery and equipment in an asset-based loan.
Common questions
- Is a landlord waiver the same as a collateral access agreement?
- Yes. The names are used interchangeably, along with landlord consent and landlord lien waiver. Each combines the landlord's subordination of its lien on the lender's collateral with a right for the lender to enter the premises.
- Does my landlord have to sign?
- Not unless your lease requires it. Negotiate a clause obliging the landlord to sign a reasonable collateral access agreement when you next sign or renew a lease.
- What happens if my landlord won't sign?
- Usually your line is smaller, not refused. The lender holds back a rent reserve from availability or excludes collateral at that location from the borrowing base. An equipment lender may lend less against equipment in that building.
- Does the waiver affect what I owe my landlord?
- No. You still owe the rent and all your lease obligations. The waiver deals only with the landlord's claim on the lender's collateral and the lender's access to the premises.
- I own my building through a separate company. Do I still need one?
- Usually yes, from your own real estate company as landlord, and a mortgagee waiver if there is a mortgage on the building. Both are generally straightforward when the owner controls the landlord.