Search Site
Menu
Personal Guarantees for Commercial Leases – a Negotiation inside a Negotiation.

Negotiation-skills-2

In times when the economy is down, it is no surprise that commercial tenant defaults increase.  During those periods, it is also not surprising to see landlords become more firm about requiring personal guarantees of commercial leases.  Typically, the individual signing a commercial lease is doing so on behalf of their capacity as an officer of an entity and has no personal legal obligation.  If the entity goes out of business, or worse into bankruptcy, the landlord’s only remedy is to file against the failed entity (which likely won’t result in much recovery for the landlord).  Enter the personal guarantee, which requires an individual be responsible from their personal assets (in addition to the entity’s assets).

In the current economic climate, unless a tenant is a major corporation with very stable financials, very few landlords will negotiate a lease without a personal guarantee.  However, personal guarantees can be negotiated to provide terms reasonably acceptable to both landlords and tenants.  The key is finding the middle ground that gives the landlord the reassurance it needs while allowing the tenant to feel comfortable as well.

The most common ways to modify a full personal guarantee are: (1) a cap on the total amount of liability for the guarantee; (2) a cap on the length of time for the guarantee; (3) a sliding scale where the amount of liability starts at the full liability of the lease and over time gets “reduced for good behavior”; or (4) a sharing of liability percentages between more than one person.

Or instead a landlord and tenant could agree on an alternative to a personal guarantee.  Some examples are: (1) a letter of credit; (2) an increase above the standard pre-paid rent; (3) an increase above the standard security deposit; and (4) tenant’s contributions to improvements.

Again, the key to this negotiation is to align the landlord and the tenant at a place where both are comfortable with the level of liability they are entering into under the lease.  Both parties should evaluate their opinions on this matter in consultation with experienced legal counsel to negotiate a mutually agreeable guaranty.

Wendy K. Lambie

Phone: 281-367-1222

Fax: 281-367-1222

[email protected]

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact a Dedicated Texas Business Lawyer To Schedule a Consultation
Call 281-367-1222 or contact us online to schedule a meeting.

Strong In Action

  • Spring 2019

    The Strong Firm represents borrower in $42.3 million HUD construction loan for multifamily real estate development in Walton County, Florida.

    Read More
  • Spring 2019

    The Strong Firm acts as legal counsel for borrower in $32.1 million HUD construction loan for multifamily real estate development in Conroe, Texas.

    Read More
  • Spring 2019

    The Strong Firm aids borrower in $31.7 million HUD construction loan for multifamily real estate development in Nueces County, Texas.

    Read More
  • Spring 2019

    The Strong Firm represents borrower in the refinancing of a $3.57 million commercial mortgage-backed security for a commercial office facility in Montgomery County, Texas.

    Read More
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  • Peer Rated 2019 Award

Recent Blog Posts

Wait… Lawyers Do That?

Since the founding of the Strong Firm P.C. in 2004, we have prided ourselves on not only providing excellent legal services, but also playing a large role in our community. Every year I have the opportunity to speak to area students from first grade through college grad students on legal-related
Read More
Wait… Lawyers Do That?

Part II – Probate: Identify the Most Efficient Probate Proceeding – Muniment of Title

Texas law provides several options to transfer ownership of a deceased person’s (usually called a “decedent”) property. We previously discussed the difference between a dependent and an independent administration. The dependent and independent administrations are used when the deceased person’s estate exceeds some minimal thresholds for size or complexity, such
Read More
Part II – Probate: Identify the Most Efficient Probate Proceeding – Muniment of Title

But You are My Attorney, not My Dentist…

Preventive maintenance for your entity from a legal perspective   “An ounce of prevention is worth a pound of cure.” 'De Legibus' (c. 1240) by English Jurist Henry De Bracton   Potential Client:       “I have owned a limited liability company for several years. I haven’t had any issues, but someone is interested in investing
Read More
But You are My Attorney, not My Dentist…

Don’t Fall for This Chinese Trademark Scam

Don’t Fall for This Chinese Trademark Scam A trademark is any word, name or symbol used to identify and distinguish goods and services. For business owners, trademarks provide an easy way to build customer loyalty and communicate the quality and source of goods and services. Businesses often spend a great deal
Read More
Don’t Fall for This Chinese Trademark Scam
  • Video Vault


    Watch videos done by our legal team to gain a better understanding of your legal needs. Our lawyers give video insight into areas such as Real Estate, Business Law, Mergers & Acquisitions and much more.

Pay Retainer Online

Use our easy-to-use and secure online payment feature.
We accept all major credit cards.

Pay Your Retainer

Contact us

Quick Contact Form