Whether you own a small retail space or a large warehouse, it is crucial to protect your property. Asking your tenant to sign a personal guarantee is one of the best ways of achieving that goal.
What Is a Personal Guarantee of a Commercial Lease?
A personal guarantee of a commercial lease is a contract, signed by the landlord and an individual affiliated with their tenant–often an owner or high-level officer–that imposes personal liability for rent and other expenses if the business isn’t able to pay. These agreements make renting real estate a less risky proposition for landlords.
Advantages of Requiring a Personal Guarantee
Many commercial property owners require their tenants to sign personal guarantees as part of the rental process. They do so because these agreements:
- Encourage tenants to take good care of the commercial property
- Make tenants less likely to vacate the property without any notice
- Increase the likelihood of the tenant paying their rent on time, and
- Reduce the risk of the landlord incurring unexpected expenses
Personal guarantees also allow landlords to expand their pool of potential tenants to businesses that have a less-than-perfect credit.
Types of Personal Guarantees for Commercial Leases
There are many different types of personal guarantees for commercial leases, including:
An absolute (or full) guarantee is the simplest type of personal guarantee for commercial leases. They state that the guarantor must cover all of the company’s debts and obligations in the event that the business files for bankruptcy or is otherwise unable to pay its rent.
A limited guarantee also forces an individual to personally cover their company’s debts. However, they place a strict limit on the individual’s obligations.
In some cases, this limit is a flat dollar amount. In other instances, it is a percentage of the value of the lease.
Good Guy Guarantees
A good guy guarantee states that the guarantor is liable for all the tenant’s debts. However, their liability may expire on the date the business surrenders the property if:
- The tenant is up to date on their rent payments and other obligations
- The tenant provides the landlord with adequate notice, and
- The commercial property is returned in good condition
Good guy guarantees are often used in conjunction with a flat dollar guarantee.
Need More Info? Contact The Frazer Firm Today
Do you want to learn more about how a personal guarantee can help you protect your property? If so, please don’t hesitate to contact The Frazer Firm. Our experienced business lawyers will be more than happy to provide you with all the information you need.
Nobody forms a business partnership with the expectation that it will all fall apart one day in the future. Nonetheless,…