What Is a Personal Guarantee Commercial Lease (and How to Get out of One)
You've got your brand new small business idea -- you just need a place to launch. And finding the perfect space for your venture can be a complex equation of location, decor, amenities, and square footage. Finding the right landlord and lease is also essential, and, unfortunately for startups, landlords might be a little more hesitant to rent to businesses with little track record, or they may ask for additional clauses to ensure they get their rent.
One of those is a personal guarantee, which more and more commercial landlords are insisting upon from tenants. So how does it work? And can you get out of one?
Guarantees, Good Guys, and Time to Go
Essentially, a personal guarantee in a commercial lease is pretty much what it sounds like: it makes you personally liable for rent if the business can't pay. That means if the business falls on some hard months or is ultimately unsuccessful, the landlord can sue you for any unpaid rent from the commercial lease. Considering the failure rate of new businesses, it's an obvious protection for skittish landlords, but offers the small business owner little in the way of financial or legal protection.
The best option for you, obviously, is not to have one of these clauses in the lease to begin with. If it's possible to show pre-existing steady profits, or a track record of consistent rent payments elsewhere, you might be able to avoid the personal guarantee. Failing that, there are a couple options for negotiation:
- Time Release: You could request that the personal guarantee expire after a certain amount of time and proven payment, say two years into a five-year lease; or
- Good Guy Clause: You could ask that instead of the personal guarantee, you insert a "good guy" guarantee, holding you liable only until you've lawfully left the premises as long you pay your rent until then.
Getting out of the Guarantee Early
If you did sign a personal guarantee as part of the commercial lease, your options for an early exit are fairly limited. You could ask for an amendment to the lease or renegotiate the guarantee terms. You could offer your landlord a settlement on the remaining rent debt. Or you could just bail, and handle it in court later.
Just as you shouldn't enter a commercial lease before consulting an experienced commercial attorney, you'd be wise to talk to a lawyer before exiting the lease as well.
Related Resources:
- Find Business & Commercial Lawyers Near You (FindLaw's Lawyer Directory)
- 4 Tips to Get out of Your Commercial Lease (FindLaw's Free Enterprise)
- How to Negotiate Better Commercial Leases (FindLaw's Free Enterprise)
- Important Commercial Lease Terms (FindLaw's Learn About the Law)