Moving forward on a commercial lease can be an exciting time for you and your business. A new or expanded location can help you build your business and develop your customer base.
As you start looking at commercial leases, however, it is essential to also look at the personal guaranty the landlord requires. The personal guaranty is meant to protect your future landlord. Still, if you do not negotiate the agreement, your personal assets could be at stake.
Here’s what you should know before you sign a personal guaranty as part of a commercial lease.
What will it do?
In most transactions, your business entity protects your assets. This means that if your business fails, the person or company on the other end of the agreement cannot sue you personally.
For commercial landlords, being unable to sue the business owner can be a substantial risk. Suppose you cannot complete your lease term, and your business does not have any remaining assets. In that case, the landlord has no recourse for the unpaid rent.
A personal guaranty gives more security to the commercial landlord. If your business breaches the lease agreement, the landlord can go after your personal assets.
When does a personal guaranty go into effect?
The personal guaranty only goes into effect if there is a breach in the lease agreement. However, when you negotiate the personal guaranty, it is essential to pay attention to when the landlord considers an action a breach.
Personal guaranties can have many variations in their terms. It is important to have knowledgeable support when you are negotiations the personal guaranty portion of your commercial lease.