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Personal Guarantees and How They Apply to Commercial Leases

Posted on: October 9, 2017

You have likely signed a basic lease agreement at one point or another for an apartment, vehicle, or boat. Most of these agreements use a standard lease template with minor adjustments, and negotiations are typically simple.

However, when it comes to commercial real estate leases, these agreements become far more complicated and frequently require the advice of a Fort Lauderdale commercial real estate attorney.

Because of the fact that business entities can sign commercial leases rather than individuals, the owner(s) of the business can legally escape personal responsibility if they fall behind on payments. A landlord may request that a potential commercial tenant provides a personal guarantee so that the business’s owners would be legally liable to pay for any rent owed as well as future rent, if that rent is guaranteed to the landlord in the agreement.

Many landlords will ask for a personal guarantee

After the recession of 2008, several businesses inevitably ended up defaulting on their lease agreements, and landlords were stuck without a paying tenant or several months of back rent owed. After this occurred, many landlords were understandably more hesitant to rent their commercial spaces out without a strong guarantee that they would have some kind of recourse to receive payments owed if the tenant goes under.

Therefore, personal guarantees started to become more commonplace. Being asked to provide a personal guarantee is often expected, especially for new business owners. Landlords have every interest in requesting a personal guarantee, and this agreement is often negotiated separately from the lease. Tenants and landlords should always consult with a commercial real estate attorney in Fort Lauderdale while negotiating this agreement, as it has potentially serious ramifications for both parties.

The document identifies “guarantors”

Personal guarantee documents will identify an individual, entity, or multiple individuals as “guarantors” of the lessee, which is typically the business entity. Should the entity fail, the guarantors would then be liable to pay for any lease related debts on behalf of the entity. Guarantors can be legally liable even if the entity goes bankrupt.

With this said, the guarantor has many remedies and points that can be negotiated. There can also be time limits set for guaranteed rent, a letter of credit can be offered rather than a personal guarantee, and other points of negotiation.

Whether you are a tenant or landlord, it’s essential to get the assistance of an experienced Fort Lauderdale commercial real estate attorney if you are negotiating a lease or personal guarantee. Call Schecter Law today at (954)-779-7009 to schedule a meeting to review your situation.