Personal Guarantees in Commercial Office Space Leases

What does it mean to sign a lease that requires a personal guarantee?

When entering into a commercial lease, the Landlord often requires a personal guarantee from the business owner, even if they have formed a corporation or LLC, and may refuse to rent the space without one.

This means that the guarantors will make the lease and other payments if the business fails. Landlords often ask for a personal guarantee from start-ups and other small businesses.

Read very carefully the language about personal guarantees and how long they last and what happens if the business fails and can’t fulfill the remaining payments on the lease.

Why do landlords require a personal guarantee?

When landlords have to pay for a large amount of tenant improvements (i.e. constructing the space to your specifications), personal guarantees are usually required.

If you are a small business with plans to grow or are unsure of the future, limit your personal exposure.  Designing the perfect office space shouldn’t be your highest priority.  Find practical space with a reputable landlord.

Should you sign a lease requiring a personal guarantee?

Statistics show that only 50% of all new small business start-ups will be operating in 5 years.  If your landlord requires a personal guarantee, negotiate to limit the term of the guarantee or best yet, look for a landlord that doesn’t require one.

 

David Merrell is the COO at North Forest Office Space

North Forest Office Space makes office leasing simple. With affordable lease rates including taxes and common area maintenance, there are never any surprises. North Forest specializes in providing medical, dental and professional office space for small to medium-sized businesses. The flexible design options mean that a business owner can lease the space needed now and add space as the business grows. North Forest offers convenient, suburban locations near Buffalo and Rochester, NY, Denver, CO and Austin, TX.

 

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