LCP Proudreed PLC - Irish Stock Exchange

of the original assignee of the outgoing tenant providing that guarantee and not to any subsequent
assignee of that original assignee. The same principles apply to an original assignee (and any subsequent
assignees) if it assigns the lease.
In respect of the Occupational Leases reviewed in the Certificates of Title to which the 1995 Act applies,
there is a requirement that the Occupational Tenant must provide an authorised guarantee agreement
either as an absolute pre-requisite to assignment or where reasonably required by the Borrowers.
However, there can be no assurance that such authorised guarantee agreements will in fact be obtained
or that any assignee of a lease of premises within any of the Secured Properties will be of a similar credit
quality to the original tenant, or that any subsequent assignees (who in the context of a new tenancy will
not be covered by the original tenant’s authorised guarantee) will be of a similar credit quality. Nor can
there be any assurance that the credit quality of the party giving an authorised guarantee will be
maintained.
Some of the Occupational Leases as at the Closing Date were entered into before 1 January 1996 or
pursuant to agreements for leases in existence before that date. Because the 1995 Act has no retrospective
effect, the original tenant under such an Occupational Lease will remain liable under its lease
notwithstanding any subsequent assignments, subject to any express releases of the tenant’s covenant on
assignment. In such circumstances, the first and every subsequent assignee would normally covenant with
its predecessor to pay the rent and observe the covenants in the lease and would give an appropriate
indemnity in respect of those liabilities to his predecessor, thus creating a ‘‘chain of indemnity’’.
Market risks on enforcement
In the event of enforcement of any Obligor Security, it may be necessary to sell the relevant Secured
Property. Only the proceeds from enforcement of the security in respect of Secured Properties comprised
within the Property Portfolio relating to a particular Borrower will be available for repayment of its
Commercial Mortgage Loan. Amounts received in respect of the Secured Properties comprised within the
relevant Property Portfolio by way of proceeds following a sale could be insufficient to pay amounts due
under the related Commercial Mortgage Loan, and therefore, ultimately, the Issuer’s ability to make
payments under the Notes may be adversely affected.
The liquidation value of any Secured Property may be adversely affected by risks generally incidental to
interests in real property, including changes in political and economic conditions or in specific market
sectors, declines in property rental or capital values, changes in rental terms (including tenants’
responsibility for service charges), variations in supply of and demand for retail, industrial or (as
appropriate) office space, competition, the ability of the owner to provide maintenance and control costs,
prevailing gilt yields and interest rates, declines in occupancy rates, changes in governmental rules,
regulations and fiscal policies, terrorism, acts of God, and other factors which are beyond the control of
the Borrowers and any other party to the transaction.
Reliance on Valuation Reports
There can be no assurance that the valuations set out in the Valuation Report for each of the Secured
Properties will continue at a level equal to or in excess of such valuations. To the extent that the value of
each of the Secured Properties fluctuates, there is no assurance that the aggregate of the value of the
Secured Properties will continue at least equal to or greater than the unpaid principal and accrued interest
and any other amounts due under the related Commercial Mortgage Loan Agreement. If any Secured
Property is sold following a Loan Event of Default, there is no assurance that the net proceeds of such
sale will be sufficient to pay in full all or any amounts due under the relevant Commercial Mortgage Loan
Agreement. In particular, it should be noted that the Secured Properties, being, generally, large industrial
sites and large retail shopping centres, are specialised property assets for which, in such circumstances, no
ready market may exist. Furthermore, the value of the Secured Properties and, consequently, the
Borrowers’ ability to pay amounts due under the Commercial Mortgage Loan Agreements and
(ultimately) the Issuer’s ability to make payments under the Notes, are dependent on economic and real
estate conditions in the United Kingdom and in particular the strength of the industrial and retail sectors.
Environmental risks
Under its Commercial Mortgage Loan Agreement, each of the Borrowers represents that it is in
compliance in all material respects with environmental laws and regulations applicable to it as at the
Closing Date and covenants to comply in all material respects with environmental laws and regulations
currently applicable to it. However, there can be no assurance that a breach of environmental laws and/or
44