Standby letters of credit are a tool that both commercial landlords and tenants can use as a security device in lieu of cash deposits. A letter of credit is a separate instrument with a distinct personality from the underlying lease that creates the obligation to provide a letter of credit.

A letter of credit comes in a variety of types and forms and its use varies depending upon the underlying commerce to which it relates. In the commercial leasing sector, the letter of credit is commonly used as a means of security where the landlord relies upon the credit of a banking institution as a substitute to relying upon the direct credit of the tenant.

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