Signing a personal guarantee in a commercial lease is usually the last thing you want to do as an investor. Keeping personal and business assets separate is the gold standard for reducing liability and risk, and personal guarantees negate that effort. Unfortunately, most lenders and landlords today typically require someone to be liable if things go south – and they want that person to be someone other than a business entity or LLC.
Before signing a personal guarantee, speak with an experienced commercial real estate attorney and consider your alternatives. There are ways to negotiate favorable terms in a commercial lease agreement.
Alternatives to Protecting Your Assets
Most commercial lease agreements in Florida are going to include a personal guarantee provision. A personal guarantee is a legal commitment that makes you, the business owner, personally liable for fulfilling the terms of a commercial lease if your business entity cannot. This means that if your business defaults, the landlord can go after your personal assets to recover unpaid rent or other damages. It’s in your best interest not to sign a personal guarantee, but what other options do you have?
One reason for including personal guarantee provisions in commercial lease agreements is that the landlord views the investor as risky. To demonstrate financial security, you may consider offering a larger upfront deposit in lieu of a personal guarantee or demonstrate your business’s financial stability with strong records and consistent cash flow.
If a personal guarantee is unavoidable, you can – and should! – negotiate with the landlord to create more favorable terms.
For example, you may propose a limited personal guarantee, rather than unlimited. A limited personal guarantee restricts the guarantor’s liability to a specific amount or time frame. Another option is to offer a rolling guarantee. One that would put a maximum threshold, say 18 months from the date of default, as a period of time for which the personal guarantee is enforceable.
Consult an Attorney Before Signing a Personal Guarantee
Personal guarantees are a common feature of commercial lease agreements, but they come with significant risks. Consider all your options and be prepared to negotiate before committing to one. Our attorneys at the Law Offices of Alex D. Sirulnik, P.A. are here to help ensure your assets are protected so your business can continue to grow and thrive. Call us today to learn more.
