Enter to open, tab to navigate, enter to select
Burn Down
Practical Law Glossary Item w-014-0630 (Approx. 3 pages)
Glossary
Burn Down
In a commercial real estate leasing context, the reduction of a security deposit over a lease term. Since a tenant's remaining lease obligations decline as the lease term progresses, a tenant may negotiate for a burn down provision, a reduction in the security deposit (cash or letter of credit or a combination of both) after a set period of time during the lease term.
A burn down provision typically requires that:
- A legal instrument is properly recorded in the public records.
- The tenant must request a burn down in writing from the landlord.
- The tenant is not in default beyond applicable cure periods either:
- when the tenant notifies the landlord; or
- when the burn down becomes effective.
- If the tenant delivered a letter of credit, then either:
- the tenant must provide a replacement letter of credit for the reduced security amount; or
- the landlord must execute the required forms to amend the existing letter of credit.
- If there is a cash security deposit, the landlord has an agreed time period to refund any excess money to the tenant.