When can a landlord call on a bank guarantee provided by a tenant who defaults under the lease?

Dibbs Barker, Lawyers have written an interesting article about the difficulties potentially faced by a landlord when calling on a bank guarantee from a tenant to cover some of its losses.

(see: http://www.lexology.com/library/detail.aspx?g=8e17e49e-3c89-47b6-ad5e-2aaa7a6de98b& utm_source=Lexology+Daily+Newsfeed& utm_medium=HTML+email+-+Body+-+General+section& utm_campaign=Lexology+subscriber+daily+feed& utm_content=Lexology+Daily+Newsfeed+2011-09-08& utm_term=). The case referred to in the article related to a building dispute (Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283), a decision of the Court of Appeal in New South Wales where there was an unsuccessful call on a bank guarantee. Dibbs Barker warn landlords that there is an analogous risk in calling on bank guarantees to cover losses by a landlord caused by a tenant's default. The risk relates to the wording in a lease, and the definition of when the lease is in default. The recommendation is that landlords carefully check the lease before initiating any recovery action or serving a default notice. That is alwyas good advice. The writer notes: "The terms of a lease can make or break a landlord’s entitlement to call on a guarantee, particularly for make good works that need to be rectified after the lease has been determined.
Particular care should be taken to consider the terms that relate to events which lead to the lease’s termination and circumstances in which the bank guarantee is returnable."
This advice holds true in all potentially litigious situations. The first place to look when considering a claim is the agreement between the parties and in particular whether the circumstances in question are covered by the actual written terms.