More and more frequently, landlords are agreeing to accept lease guarantees from foreign entities with substantial assets. This can happen when a successful foreign company expands into the U.S. using a new entity with no financial track record and limited financial resources. We have recently handled leases involving international manufacturing, battery making, robotics and bottling companies who expanded into the US.
While a little more cumbersome, there are steps to take to minimize the risks associated with accepting a lease guarantee from a foreign entity. Here are ten steps to take that will protect and enhance the ability to collect on a guarantee in a foreign jurisdiction, if ever needed.
Identify Assets and Origin
1. Identify all assets owned by the foreign entity in the U.S. prior to accepting the guarantee. Enforcement and collection will be much easier with respect to assets physically located in the U.S.
2. Require the guarantor to provide quarterly financial statements. Ideally, the guarantor will generate standalone, audited financial statements.
3. Clarify the company’s place of origin as well as its principal place of business. They may be different, and the distinction may be relevant.
Obtain Proper Authorizations
4. Ensure that the execution of the guarantee is duly authorized by appropriate corporate action in accordance with the company’s by-laws or charter. This means making sure that a duly authorized officer or company official signs the guarantee.
5. Receive an opinion from the Tenant’s law firm if it is unclear who is authorized to sign the guarantee.
6. Obtain an original signature and have the signature and document authenticated by an apostille stamp in the foreign jurisdiction.
Agree to Applicable Law, Venue and Jurisdiction
7. Require the guarantor to acknowledge and agree to the applicable law (the state of the transaction) and venue (the appropriate state court) in the guarantee document.
8. Require the guarantor to consent and submit to the jurisdiction of the relevant state and/or county courts for all purposes set forth in the guaranty.
9. Include clear notice provisions in the guarantee specifying exactly how notices will be properly delivered to the guarantor.
10. Understand how a U.S. judgment against the guarantor will be recognized and enforced in the relevant foreign jurisdiction. There is no uniform international recognition of foreign judgments act, so enforcement of a judgment obtained from a U.S. court in a foreign country will depend on the local law in the foreign jurisdiction, or any specific treaty or agreement between the U.S. and the foreign country. It is prudent to consult with local counsel in the applicable foreign jurisdiction, so you understand the process and requirements up-front.
While every situation is unique, these are some of the top action items to facilitate documentation, enforcement and collection of a foreign guarantee if ever needed. To ensure your interests are protected, consult with a seasoned attorney before accepting a lease guarantee from a foreign company. Hinckley Allen is a member of Globalaw, a legal network of over 80 member firms across 70 jurisdictions and can facilitate an introduction to a trusted colleague worldwide.
Research and drafting assistance from summer associate, Bidushi Adhikari.