A Lease Letter of Credit is a crucial financial instrument in Malaysian commercial leasing transactions, providing payment security for high-value or long-term lease arrangements. This document is typically used when a lessor requires additional payment security beyond traditional lease deposits or when dealing with new or foreign lessees. The letter of credit serves as a bank's irrevocable commitment to pay lease obligations, subject to the presentation of compliant documents. Under Malaysian law, these instruments must comply with both the Financial Services Act 2013 and Islamic Financial Services Act 2013 where applicable, while also adhering to international banking practices such as UCP 600. The document includes specific terms for drawing conditions, document requirements, and payment mechanisms, typically structured to cover multiple lease payment periods.
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1. Parties: Identification of all parties: the issuing bank, the beneficiary (lessor), and the applicant (lessee)
2. Background: Context of the underlying lease agreement and purpose of the letter of credit
3. Definitions: Key terms used in the document including banking, lease, and technical terms
4. Letter of Credit Details: Specific information including LC number, amount, currency, and expiry date
5. Lease Reference: Details of the underlying lease agreement including property description and lease terms
6. Payment Terms: Conditions and mechanism for drawing on the letter of credit, including required documentation
7. Documentation Requirements: Specific documents required for presentation to trigger payment
8. Presentation Procedures: Process and timeline for presenting documents and receiving payment
9. Bank's Undertaking: The bank's commitment to honor compliant presentations
10. Governing Law and Jurisdiction: Specification of Malaysian law and relevant jurisdiction
1. Islamic Banking Compliance: Required when the letter of credit needs to be Shariah-compliant
2. Transfer Rights: Include when the letter of credit needs to be transferable
3. Multiple Drawing Provisions: Include when multiple drawings are permitted over the lease period
4. Force Majeure: Optional clause dealing with unforeseen circumstances affecting the lease or LC
5. Anti-Money Laundering Provisions: Additional compliance requirements for high-value transactions
6. Automatic Extension Clause: Include when the LC needs to automatically extend based on lease renewal
1. Schedule 1 - Property Details: Detailed description of the leased property
2. Schedule 2 - Lease Payment Schedule: Breakdown of lease payments covered by the LC
3. Schedule 3 - Required Documents: Comprehensive list of documents required for LC drawings
4. Appendix A - Form of Drawing Request: Standard format for submitting drawing requests
5. Appendix B - Form of Presentation Certificate: Template for beneficiary's presentation certificate
6. Appendix C - Bank Contact Details: Contact information for relevant bank departments
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