For many of our clients entering into a commercial lease as a Tenant, the Landlord will often require that one or more of the principals or owners in the endeavor sign a personal guaranty. In most cases, unless the company is a large national company with an established track records, Landlords will refuse to lease the space without a personal guaranty.
What is a personal guaranty? Simply put, a personal guaranty on a commercial lease, as its name implies, is a legal document wherein guarantor(s) will be liable for the payment (and often performance) under the lease should the Tenant fail to pay or perform. The guaranty is typically a separate contract from the lease, although the guaranty can actually be a part of the lease itself. A personal guaranty is typically drafted very broadly in the Landlord’s favor and usually makes the guarantor personally liable for anything that the Tenant is liable for under the lease. Most personal guaranties state that the Landlord can proceed immediately against the guarantor in the event of a default under the lease and need not pursue the Tenant at all. This is important for a Landlord particularly when the Tenant is an entity. Without a personal guaranty, the Landlord would usually only be able to pursue a claim against the entity in the event of a default, but not the owner(s) of the entity personally. A personal guaranty allows the Landlord to pursue both the entity and the guarantor (typically the owner of the company) if the Landlord chooses.
Should I sign a personal guaranty? A lease negotiated on behalf of a Tenant that does not require a personal guaranty would be ideal, but not likely in today’s market. In most cases, from a Tenant’s perspective a personal guaranty is a necessary evil when it comes to commercial leases. Though the personal guaranty requirement may not be negotiable from a Landlord’s perspective, some aspects of the guaranty may be negotiable, particularly if the Tenant has a solid rental and business history and if the Tenant’s attorney is experienced in representing and negotiating commercial leases on behalf of Tenants.
In certain circumstances we, at the Strong Firm P.C. have been able to negotiate limits to the time, scope, and even amount of the personal guaranty in favor of our clients. As with all legal documents, it is critical to have any personal guaranty, as well as the commercial lease that it is supporting, reviewed by a qualified attorney to make sure that you are protected to the maximum extent possible.
Eric R. Thiergood, Sr.
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