Commercial lease agreements in Florida tend to be years-long commitments, and these longer terms mean there is more time for things to either go well and for the business to flourish – or the opposite… for the business to crumble and the owner to default on its lease obligations before the end of the term.
We all know how inherently risky real estate is for investors and lenders, which is why landlords and lenders put provisions in place to protect themselves when drafting commercial lease agreements. They want to be assured that if the tenant defaults on the agreement, there will be recourse. This is where personal guarantees come in.
If you’re looking to lease commercial space in Florida, you will likely encounter a personal guarantee clause in your lease agreement. Here’s what to know about personal guarantees and what to consider before signing on the dotted line.
What is a Personal Guarantee?
A personal guarantee is an agreement where an individual (typically the business owner or a principal of the company) personally commits to fulfilling all lease obligations if the business entity fails to do so. Personal guarantees have become used more frequently in commercial lease agreements and business loans in the past decade and a half. The financial crisis of 2008 further spurred the use of them as it became painstakingly obvious how tenuous the financial strength of some businesses can be.
Worth noting, however, is that not all personal guarantees are created equally. There are several types of personal guarantees including limited and unlimited personal guarantees. For example, a limited personal guarantee might cap the obligations under a personal guarantee at 24 months rather than for the full length of the lease term (a.k.a. an “unlimited guarantee”).
Everything is Negotiable
Personal guarantees are designed to benefit the landlord in a commercial lease agreement, but they may also restrict the tenant pool if a landlord is not willing to consider possible negotiations. Because signing a personal guarantee is a serious commitment, it’s essential to approach it with caution and negotiate favorable terms.
Remember, you don’t have to accept the first draft of the lease agreement. Everything is negotiable in a commercial lease agreement. Carefully review the terms of the personal guarantee with your real estate attorney to understand the scope of liability. If you don’t agree with the terms, negotiate.
Contact Us at Sirulnik Law and ADS Title Services, Inc.
The implications of a personal guarantee on commercial lease agreements in Florida must be seriously weighed by tenants and landlords. For help understanding the legal obligations and risks associated with personal versus corporate guarantees, talk to an experienced Florida real estate attorney. Our team at the Law Offices of Alex D. Sirulnik, P.A. can help with all areas of corporate and real estate law. Contact us todayto schedule a consultation.
