SPV vs Personal Name: Legal Risk, Guarantees, and Security for Landlords

By /

SPV vs Personal Tenant: Security and Enforcement in Leases

An SPV tenant is a ring-fenced company formed to sign a lease and hold little else. A personal name tenant is an individual who signs directly and carries personal liability. For landlords, the real question is straightforward: who do you collect from, how fast, and with what certainty across timing, risk, and optics?

This guide explains how to evaluate SPV versus personal name tenants, what security actually works in stress scenarios, and how to document and monitor the package so it pays when you need it.

Context and objectives: enforcement over theory

The SPV versus personal name choice is not about theory. It is about enforcement value, predictability in insolvency, and the cost of credible security. Sponsors like SPVs because they cap downside and preserve flexibility. Landlords should like whatever gives liquid, enforceable protection that survives stress. Lenders to the property may also shape the security package through their own covenants, so watch for subordination creep that weakens recoveries.

One practical twist: owner-occupiers that complete sale-leaseback programs often negotiate sophisticated security mechanics and surrender provisions. If you are dealing with that profile, calibrate covenants and change-of-control protections early. For a broader primer, see this sale-leaseback overview here.

Legal forms and ring-fencing: what structure really means

United States

Tenants often use single-member LLCs, typically Delaware or property-state entities. With financing, you may see separateness covenants, limited-purpose language, and an independent manager to reduce substantive consolidation risk. These features improve predictability but do not bar a filing. Focus on estate treatment of the lease, control over collateral, and reach to guarantors.

United Kingdom

Tenants commonly use private companies limited by shares. Landlord security often includes debentures creating fixed and floating charges over tenant assets. On assignment, an Authorised Guarantee Agreement keeps the outgoing tenant on the hook until release. Personal guarantees from directors or principals are common for early-stage users. Verify corporate records at Companies House before signing and mirror that data in your KYC file.

European Union

Practical equivalents include GmbH and SARL entities. Floating charge tools vary. Cross-border enforcement and judgment recognition can be slow if guarantors sit outside the lease jurisdiction, so plan for timing friction and select law and venue to support faster actions.

Bankruptcy-remote is shorthand for separateness that makes consolidation less likely. It does not prevent a filing. For leases, concentrate on whether your collateral sits outside the estate, whether you can draw without a court fight, and how you can reach moneyed guarantors.

What landlords actually risk

  • Payment default: Base rent, additional rent, and reimbursements.
  • Performance default: Holdover, restoration, and make-good obligations.
  • Insolvency treatment: In the U.S., nonresidential real property leases must be assumed or rejected within 120 days, extendable by 90 days; further extensions require landlord consent under section 365(d)(4) of the Bankruptcy Code.
  • Enforcement friction: Automatic stay, moratoria, or administration can pause remedies. Security independent of the estate like letters of credit can be decisive.
  • Collection risk: Individuals may have exemptions and offshore assets; SPVs may be thinly capitalized with limited assets.

SPV vs personal name: trade-offs that matter

Both profiles can work if the security stack is right. The obligor’s name is secondary to the quality of the protection behind it.

  • SPV benefits and risks: Liability is contained with minimal assets beyond a deposit or prepaid rent. Without strong security, recovery is weak. On the upside, predictable governance and clear records reduce execution risk at signing and amendments, and sponsors can change control without changing the lease. Use control consent rights to manage that governance risk.
  • Personal name advantages and limits: Signature equals recourse, but exemptions and local protections can cut recovery. Underwriting is clearer if assets are local and verifiable. Individual insolvency can delay or complicate enforcement, especially cross-border.

The security stack that works under stress

  • Cash security deposit: Provides immediate liquidity, but recent increases can face preference challenges in insolvency. Keep funds segregated and require replenishment within 5–10 business days after any draw.
  • Standby letter of credit (LC): An issuing bank’s independent promise to pay on presentation. LC proceeds typically sit outside the tenant’s estate, so draws are not stayed. Use evergreen auto-renewal with at least 60–90 days’ non-renewal notice. Limit issuers to top-tier banks or require confirmation. Allow full-face-value draw on non-renewal and convert to cash security.
  • Corporate guaranty: From a sponsor with a real balance sheet. Add minimum net worth and liquidity covenants, financial reporting, cross-defaults to material debt, and joint and several obligations where groups are involved.
  • Personal guaranty: Full, limited, or “good guy.” Good guy guaranties, common in New York City, protect rent until timely surrender and reduce downtime if surrender mechanics are precise.
  • Equity pledge over the tenant SPV: A pledge of membership interests or shares enables fast change of control on default. In the U.S., opt the LLC into Article 8 and deliver certificated interests with undated stock powers to perfect by control.
  • Fixed and floating charges: Useful in the U.K. and parts of the EU if the tenant has fixtures, equipment, or receivables. Monitor conflicts with working capital lenders to preserve priority.
  • Landlord’s lien and UCC filings: In the U.S., file a UCC-1 where a consensual lien is part of the deal, and be explicit in lease and waiver agreements about priority and access rights.
  • Parent keepwells or comfort letters: Use only as supplemental support because enforceability varies.
  • Prepaid rent: Helpful early, but exposed to preference challenges if paid shortly before insolvency. Hedge with LCs and staged obligations.

Sizing and mechanics: match coverage to expected loss

  • Loss-based sizing: Cover downtime to relet, relet concessions, unamortized tenant improvements and brokerage, legal fees, and restoration. For specialized space, add a completion bond or restoration LC.
  • Market ranges: 3–12 months of gross rent for shorter terms or stronger credits; 12–24 months for early-stage or single-location tenants. Step-downs should track amortization of landlord investment or visible credit milestones.
  • Mandatory replenishment: Any draw triggers replenishment within 5–10 business days; failure is a default.
  • Operational control: Name the landlord as LC beneficiary; hold deposits in segregated accounts with clear setoff rights. Calendar renewal dates and require early replacement if a bank rating drops.

Documentation map: put certainty into paper

  • Lease: Embed security terms, assignment and subletting limits, restoration scope, events of default, remedies, financial reporting, change of control, and transfer restrictions on SPV equity.
  • Guaranty: Use a separate instrument defining payment and performance scope, waivers, financial covenants, reporting, cross-defaults, replacement rights, jurisdiction and venue, consent to service, and survival through tenant insolvency. Include anti-avoidance to block guarantor stripping.
  • LC instrument: Negotiate a rider with evergreen renewal, simple draw conditions based on an officer certificate, issuer ratings, transferability, and a lease covenant that non-renewal without replacement equals default.
  • Security and perfection: In the U.S., use a security agreement plus UCC-1 filings, and certificated equity with Article 8 opt-in and control. In the U.K., use a debenture, share charge, and Companies House registrations within statutory deadlines.
  • SNDA: Protect LC and guaranty rights from subordination. Carve them out in lender-required SNDAs. Background on SNDAs is available here.
  • Side letters: Document good guy terms, surrender mechanics, restoration detail, and any co-tenancy or exclusive use provisions affecting default risk.
  • Closing deliverables: Collect authorizations, KYC, good standing, guarantor financials, signed guaranty, original LC, filing evidence, equity certificates and stock powers, and bank acknowledgments.

Insolvency realities you can bank on

United States

  • Lease treatment: A debtor can assume or assign if it cures defaults and provides adequate assurance. Anti-assignment clauses are largely overridden, with higher standards for shopping centers. Rejection caps damages and possession reverts.
  • LC draws: The independence principle supports post-filing draws if you follow the form. Keep conditions simple to avoid stay fights.
  • Security deposits: Setoff is possible but subject to the stay and preference exposure for recent increases.
  • Guaranties: Tenant bankruptcy does not discharge non-debtor guarantors. Avoid ipso facto triggers by tying defaults to performance and financial metrics, not mere filings.

United Kingdom

  • Administration and moratorium: Enforcement often requires consent or court leave. Rent during use of premises can be treated as an expense of the administration. Guaranties remain enforceable; LCs stay drawable.
  • CVA: A company voluntary arrangement can compromise lease liabilities. Review class composition and challenge unfair prejudice where appropriate. Strong security limits compromise exposure.
  • AGA: On assignment, an AGA can keep the outgoing tenant liable. Coordinate AGAs and guaranties to avoid accidental releases.

KYC, beneficial ownership, and sanctions: transparency that speeds enforcement

SPVs can obscure owners. Require certifications of beneficial owners and covenant compliance. In the U.S., the Corporate Transparency Act imposes beneficial ownership information reporting on most entities; require tenants to certify compliance and deliver confirmation upon request. In the U.K., leverage verified officer and person-with-significant-control data from Companies House before execution. Obtain sanctions and AML representations from tenants and guarantors, reserve termination rights if ownership crosses into sanctions territory, and appoint local process agents for cross-border guarantors.

Economics and fees: price the security you need

  • LC cost: Tenants pay an annual fee based on issuer rating, size, and collateral. Expect low single-digit percent per year for unsecured lines and lower if cash collateralized.
  • Cash deposit cost: Tenants bear opportunity cost; landlords bear segregation and administrative obligations. Allocate interest per lease.
  • Guaranty cost: Often priced into rent. Cross-border guaranty fees raise tax and transfer pricing questions, so document the economics with care.
  • SPV admin: Formation, registered agent, filings, and accounting costs are small relative to lease size but relevant for micro-tenants.

Illustrative sizing: a quick calculation

Assume a 7-year term, 500,000 dollars annual base rent plus 100,000 dollars recoveries. The landlord invests 600,000 dollars of tenant improvements and 200,000 dollars of commissions amortized over the term. Expected downtime is 10 months and relet concessions equal six months.

  • Downtime: 500,000 × 10/12 = 416,667 dollars.
  • Relet concession: 500,000 × 6/12 = 250,000 dollars.
  • Unrecovered TI/commissions: 800,000 × 5/7 ≈ 571,429 dollars if default occurs at year 2.
  • Legal/restoration: 100,000 dollars.

Target security is roughly 1.34 million dollars. A workable package could be a 1.0 million dollar evergreen LC plus a 350,000 dollar corporate guaranty cap, or an LC that steps from 1.3 million to 0.6 million dollars over three years as tenant improvements amortize.

Risks, edge cases, and governance: close the leaks

  • Preference risk: Security increases inside the preference window can be clawed back. Stage security and favor LCs over fresh cash.
  • LC non-renewal: Reserve the right to draw for full face value upon non-renewal and convert to cash security.
  • Guarantor leakage: Bar asset transfers, liens, and distributions that weaken the guarantor. Demand periodic compliance certificates and financials.
  • Equity pledge enforceability: Ensure the operating agreement permits pledges, opts into Article 8, and waives transfer restrictions on enforcement.
  • Veil piercing: Do not underwrite to it. Build recovery through guarantees and collateral, not theories.
  • Assignment and subletting: Bankruptcy can override anti-assignment. Focus on adequate assurance and require that security travels with the lease or is replaced with equivalent support.
  • Restoration and make-good: Quantify and secure; for unique buildouts, take a dedicated restoration LC.
  • Intercreditor frictions: If tenant lenders demand landlord lien waivers, preserve LC and guaranty access and negotiate cure rights.

Selection framework for landlords: right-sized support

  • No LC and weak guarantor: Require prepaid rent equal to full expected downtime plus landlord investment or decline the deal.
  • Critical or specialized space: Insist on both LC and guaranty; step down only as improvements amortize or credit strengthens demonstrably.
  • Sponsor-backed SPV: Ask for a corporate guaranty and an equity pledge. If not available, increase LC size or adjust rent.
  • Small suites and short terms: A good guy guaranty plus a 3–6 month LC can suffice if surrender mechanics are tight and space relets easily.
  • Cross-border guarantors: Require a process agent, consent to jurisdiction, and governing law that supports fast enforcement. If recognition is uncertain, upsize the LC.

Implementation timeline: move fast, perfect early

  • Week 0–1: Agree the term sheet for LC amount, guarantor, and equity pledge. Collect KYC and beneficial ownership information.
  • Week 1–2: Form or verify the SPV. Draft lease, guaranty, LC rider, and security agreements. Start the LC application and pre-clear the form with the issuer.
  • Week 2–4: Finalize documents, obtain approvals, and perfect security through UCC filings, share certificates, and U.K. registrations as applicable. Coordinate the SNDA.
  • Week 3–5: Issue and deliver the original LC, fund deposits, and deliver and review guarantor financials. Execute estoppels and side letters.
  • Post-close: Calendar LC renewals, monitor financial covenants, verify beneficial ownership compliance, and run annual draw tests to identify operational gaps.

Recordkeeping closeout: build an audit trail that pays

Archive the full security file including the lease, guaranties, LC versions, assignments, notices, certificates, perfection evidence, and all draw or renewal communications, with indexes and audit logs. Hash the archive, apply retention schedules that match lease and claims periods, and on expiration obtain bank confirmations of LC cancellation and destruction certificates where applicable. Legal holds, if any, override deletion. As an original best practice, conduct a semi-annual tabletop exercise to simulate a payment default. Validate draw mechanics, officer certificates, and notice paths so your team can execute on a banker’s clock.

Conclusion

You do not get paid for clever entity diagrams. You get paid when rent arrives on time and when it does not, you draw quickly and move on. Whether the tenant is an SPV or a person, structure security that stands outside the estate, draws without court delay, and ties back to a guarantor with real resources. Price the lease to the quality of that stack, not the name on the signature block.

Sources

Scroll to Top