Many commercial lease agreements today require investors to provide a personal guarantee on the lease as a way of protecting the landlord’s interests if your corporate entity folds or you can’t fulfill your lease obligations. But should you sign it? Not if you can help it.

What Is a Personal Guarantee, and Why Do Landlords Want It?

A personal guarantee is a clause in many commercial lease agreements that makes you personally liable for fulfilling the lease obligations if your business cannot. Essentially, it allows landlords to pursue your personal assets – like your home or savings – if the business defaults.

While it’s commonly a best practice to keep personal and business assets separate, lenders and landlords today typically require someone to be liable if things don’t end well – and they want that person to be someone other than a business entity or LLC. A personal guarantee offers a higher level of protection for the landlord and ensures that someone will have to pay up if the business closes its doors or defaults on its agreement.

While landlords often insist on personal guarantees, they may be open to alternatives, particularly if you can demonstrate your business’s stability or offer additional security. Here’s how you might avoid (or at least reduce) the need for one.

  • Demonstrate financial stability – Landlords want assurance that you’ll pay your rent on time. By presenting evidence of your business’s financial health, you may be able to avoid a personal guarantee.
  • Offer alternative forms of security – Landlords may be open to alternative forms of security instead of a personal guarantee, including a corporate guarantee, third-party co-signer or a letter of credit from your bank.
  • Negotiate the lease terms – Everything is negotiable in a commercial lease agreement, including the personal guarantee. If you can’t avoid one altogether, you may consider proposing a limited personal guarantee or a rolling guarantee, rather than an unlimited personal guarantee, which makes you liable for the entire length of the lease term. 
Contact Us at Sirulnik Law with Questions

Negotiating commercial lease agreements requires a strong understanding of corporate and real estate law. You also need an advocate who will fight on your behalf. Our experienced attorneys at the Law Offices of Alex D. Sirulnik, P.A. will do just that. Contact us today for help reviewing and negotiating a strong and favorable commercial lease agreement for your Florida business.