How do you avoid personal guarantee on a lease?
show proof of consistent income and profits (P%26L statements, balance sheets, etc.) Ask for a change to the rental agreement after 12-24 months. Ask that the warranty expires after 12-24 months as long as you have paid the rental payments on time. Try renegotiating warranty terms. Typically, a landlord will ask you to offer a deposit or a larger deposit instead of a personal guarantee.
This means that even if the lender changes the loan terms, the personal guarantee will still exist. Just because landlords and lenders need guarantees doesn’t mean that there is no room for negotiation. Before a bank lends money to a startup, they often need additional guarantees in case the loan cannot be repaid from the company’s assets or cash flow. This amount is definitely up for negotiation, and you may want to request to cover the CAM costs or the amount of the guarantee only for the tenant’s improvements.
A personal guarantee can put your personal credit rating at risk in addition to your company’s creditworthiness. For first-time contractors, a personal guarantee can be unavoidable. However, if your company has a proven record of repayment, adequate capital, and a strong balance sheet, you may be able to convince a landlord to waive the guarantee entirely. However, when it comes time to sign a commercial lease, it may be impossible to completely isolate the owner’s personal finances from business assets. If you’re new to owning a business or are desperate to get a lease, you may be overlooking the legality of the personal guarantee.
If your landlord is absolutely not moving, it’s always possible to negotiate the terms of your guarantee to limit the impact on your personal finances, your company’s operating capacity, or both. If a tenant violates a lease with three years remaining, the landlord must attempt to rent the space to another person. Business owners often need to provide a personal guarantee to get a business loan or rent commercial space for their business. In this case, the guarantor is only liable for the difference between the rent due in the original rental agreement and the rent actually paid by the new tenant.
If your business fails and defaults on its lease, your landlord is liable for the balance, and recently, the commercial real estate market collapse has led landlords to reconsider what is reasonable liability. A court can try to determine how many months it would take the landlord in the current lease environment to re-rent the space, and that’s all it will forgive. Like a loan, a commercial lease is an important obligation for a company, and the leasing company wants to know that the lease will continue to be paid until it is completed, even if the company goes bankrupt.
