The Tenant Is Solid but the Bank Does Not Value the Lease
The tenant pays on time and has done for years. The company is one anyone in the sector would recognise. The building suits its operation and it has spent its own money adapting it. Then the offer arrives, sized as though the building were empty, and nothing in the letter explains why.
This is one of the most frustrating positions an owner can occupy, because the asset is genuinely good and the frustration is genuinely justified. It is also, in the great majority of cases, a problem of evidence rather than a problem of quality. A lease becomes security at the moment a stranger can verify it. Until then it is a private confidence between a landlord and a tenant, and no credit committee lends against confidence it cannot check. What follows is the gap between the tenant an owner knows and the covenant a lender can accept, the reasons a lease is discounted in practice, how a lease should be presented so that it reads as security, what actually changes the answer, and the cases where the lease honestly will not carry the loan.
The tenant you know and the entity the bank can verify
An owner’s knowledge of a tenant is operational and accumulated. They pay on the first working day. Their site manager calls before there is a problem rather than after. They have installed equipment that would be costly to move. They renewed once already. Every one of those observations is true, useful, and inadmissible, because none of it exists in a form a lender can put in a credit paper. The lender’s view begins with a document and an identity, and it goes no further than what those two things support.
The first check is who signed. The tenant an owner names is usually a brand or a group. The covenant is whichever legal entity accepted the obligations, and in cross-border groups that is frequently a national subsidiary, sometimes a special purpose vehicle created for a client contract. If that entity is thinly capitalised and no parent guarantee sits behind it, the strength the owner is describing belongs to a company that has not promised anything. The lender is not doubting the group. It is observing that the group is not on the contract.
The second check is whether the entity can be read at all. Accounts filed in another jurisdiction, in another language and under another accounting standard are not bad accounts, but an unread account is treated as an unknown one, and unknowns are underwritten conservatively. The same applies to a guarantor located somewhere the lender would struggle to enforce against, and to a rent deposit or bank guarantee presented as though it were a covenant when it covers months rather than the years of the loan.
What repairs this is specific and unglamorous. Identify the signing entity precisely and produce its accounts, translated and briefly explained where the standard differs. Produce the guarantee if one exists, with its scope and duration stated, and say plainly that there is none if there is none, because a lender that finds the gap itself starts looking for others. Then make the second argument, which is operational dependence: the fit-out the tenant paid for, the permits held at that site, the position of the building in its distribution or production network. Supported by invoices and context, that argument is evidence. Asserted on its own, it is an opinion.
What a discounted lease usually means
Term is the most frequent reason and the least often recognised. What underwriting works from is not the headline term but the period during which the tenant cannot leave, and a long lease with an early break is read as a short lease with an option attached. If the loan matures after the first break, the lender is being asked to accept a repayment date that sits beyond the income it can rely on. It responds by shortening the loan, increasing amortisation or reducing the amount, and the owner reads the result as the lease being ignored.
Evidence is the second reason. A contract states a rent. It does not prove that the rent arrives, in that amount, on those dates, into that account. Where bank statements were never produced, or where they show amounts that do not match the contract because an indexation was never applied or an incentive was granted and forgotten, the income becomes an assertion. Files stop here more often than anywhere else, and rarely because anything is wrong. They stop because three documents describe the same rent differently and nobody reconciled them before sending the pack.
The third reason lies outside the borrower’s file entirely. The lender lends against a valuation, and the valuer may have taken a cautious view of the income, or been instructed on a basis that does not credit it, or discounted a covenant it could not verify for the same reasons the lender could not. An owner arguing with the bank about the lease is sometimes arguing with the wrong party, and the practical response is to ask what the valuation assumed before assuming the credit team is at fault.
The fourth reason is not about the asset at all. Institutions have appetites with a shape: an asset class they do not hold, a tenant sector they have decided to reduce, a jurisdiction that requires a verification process they do not run. Where that is the cause, no amount of additional evidence changes the outcome, because the file was never being assessed on its merits. Recognising this early is worth a great deal, since the remedy is a different lender rather than a better presentation, and the two remedies are expensive to confuse.
Presenting a lease so that it reads as security
The most effective single document in these files costs an afternoon to produce. It is a plain summary of the lease, one page, written so that someone who has never seen the asset can understand the income: the exact signing entity and any guarantor, the commencement and expiry dates, the term certain, every break option with the notice and conditions attached to it, the current rent and how it was arrived at, the indexation mechanism and the date it was last applied, the deposit or guarantee held, the allocation of repair, service charge and insurance, the position on assignment and subletting, and the termination rights on insolvency. Each point references the clause it comes from, so that the reader can verify rather than trust.
Behind the summary goes the chain of documents, complete and in order. The original lease, every amendment, every side letter, any assignment or novation with the consent that accompanied it, and the guarantee. Owners omit side letters more often than any other document, usually because they were commercial courtesies rather than legal instruments, and they are precisely what legal due diligence finds. A side letter disclosed at the start is a detail. The same letter discovered late in legal due diligence is a credibility event, and it changes how everything else in the file is read.
Then the evidence that the contract is real. Bank statements over a period long enough to establish a pattern rather than an anecdote, matched line by line to the rent invoices, with any arrears shown and explained rather than omitted. Where indexation applies, a year by year reconciliation showing what was charged and on what basis. This is the work that converts a lease from a description of income into a record of income, and it is the single change that most often moves a sized offer upwards.
Finally the net position. Owners quote the passing rent. Lenders work from what is left after the costs the tenant does not bear: management, the repairs the lease leaves with the landlord, insurance, any service charge shortfall, and the capital items that will fall due within the life of the loan. Presenting those costs itemised and honestly is not a concession. It removes the lender’s need to estimate them, and a lender estimating unstated costs estimates them badly, always in the same direction.
What actually changes the answer
Sometimes the fix is not presentation but structure, and it belongs to the borrower to propose. Amortisation that reduces the exposure before a break date. A cash trap in the years approaching lease expiry. A debt service reserve. A shorter loan matched to the term certain rather than a longer one argued for against it. Each of these addresses the lender’s actual concern instead of disputing it, and a borrower who arrives with the mitigation designed is negotiating a structure rather than receiving conditions. Leverage runs up to 70 per cent depending on the transaction, and this is the kind of detail that decides where beneath that ceiling a particular file lands.
The most underused move happens before the lender is approached at all. A tenant that intends to stay can often be persuaded to extend the term, remove or defer a break, or add a group guarantee, in exchange for something the landlord can afford to give. That conversation costs nothing to have and it changes the covenant the lender sees rather than the way it is described. It has to happen first, though. Re-gearing a lease in the middle of a financing process, with a deadline visible to everyone including the tenant, is a negotiation conducted from the weaker side.
Changing the reader is the other lever. Traditional banks, family offices and specialist credit institutions do not weight the same lease identically, and an institution whose process is built around income-producing assets will read a covenant that a general commercial desk discounts by policy. Approaching the right one is not a matter of persistence. It is a matter of selection, and a file that has already been shown to several lenders and declined arrives at the next one carrying that history.
Structure above the asset matters too, and it is frequently what the lender is actually struggling with. In one transaction we structured, a German holding company owned a logistics warehouse near Barcelona valued at EUR 15M, let on a long lease and free of charges, and the financing was obtained because the lease and the cash flows were analysed in support of the debt and the borrowing was aligned with the German corporate structure above the asset. The lease carried the loan, but only once the chain around it had been documented well enough for the lease to be reached.
When the lease genuinely will not carry it
Not every discount is a misunderstanding, and an honest article has to say so. A single tenant on a thin covenant, in a building configured around that tenant’s process, on a term shorter than the debt, is a real concentration of risk however reliably the rent has arrived so far. The lender is not failing to see the quality of the tenant. It is seeing that the entire loan depends on one company’s continued presence, and that if that company leaves, the building has to find a successor in a market the owner has never had to test.
The owner’s instinct at that point is to argue harder, and it is the wrong instinct. A discount is a price, not a judgement of character. The useful response is diagnostic: establish whether the cause is documentation, in which case it is fixable in weeks; structure, in which case it is fixable through amortisation, reserves or a shorter term; or genuine credit concentration, in which case it is not fixable at all and the answer is lower leverage, a second asset in the security package, or an acceptance that this asset supports less debt than the owner hoped.
That last answer is worth more than it appears. An owner who learns that the whole value of a building rests on one contract with one company has learned something that matters well beyond the financing, and has learned it from a party with money at stake rather than from an adviser being agreeable. Several owners have re-geared a lease, diversified a tenancy or reconsidered a disposal on the strength of what a credit process told them about an asset they thought they knew.
The distinction to hold on to is simple. A good tenant is a commercial fact. A bankable lease is a documentary one. They usually describe the same thing, and when they do not, the gap is almost always closed by work on the file rather than by argument about the merits.
Montclare does not act as a lender. It structures transactions, prepares the file and coordinates financing with authorised institutions.