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As a means of securing a tenant’s obligations under the lease, a letter of credit (LC) offers distinct advantages over a cash security deposit. The landlord’s underlying assumption is that if the tenant defaults, drawing on the LC will be as easy and automatic as making a withdrawal from the tenant’s security deposit account. Unfortunately, it doesn’t always work out that way. The key is what the LC says. Accept an LC with terms unfavorable to your interests, and your security can vanish into thin air.
