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Should I personally guarantee my commercial lease?

Discussion in 'Business Management' started by SignProPlus-Chip, Jul 26, 2012.

  1. SignProPlus-Chip

    SignProPlus-Chip Active Member

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    Feb 19, 2012
    Bluffton, SC
    So here is the deal, myself and my business partner form an LLC. We finally have our commercial space locked down, and get to the point of signing a contract. The initial draft of the contract comes in with my partner's name on it as the "Tenant" I promptly amend this to read with our LLC name instead and send it back.

    Well the Lessor receives this and sends word that he needs one of our names on it, to personally guarantee the lease.

    Doesn't this completely defeat the purpose of our having an LLC in this instance?

    I understand that with the current economy it is more common now for people to want a guarantee like this from a lessee. With that said though, who can predict the future? What if something happens? I could get hit by a truck and leave my business partner down and out and liable for rent, or vice versa.

    I am thinking right now to offer a personal guarantee, but on a term basis, something like the first year of the lease, and if we break contract only being obligated to pay 6 months rent or until the lessor finds another tenant.

    Just looking for others thought on the matter.
     
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  2. royster13

    royster13 Very Active Member

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    I guess it depends on who needs who more....
     
  3. Pat Whatley

    Pat Whatley Major Contributor

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    Which is exactly why your landlord wants a personal guarantee. Far too many people go into business, rack up debt under the company name, then decide they don't want to be in business anymore and just walk away.

    With your name on the line you're less likely to screw the landlord over...and if you do he's got legal recourse.

    If the "hit by a truck" scenario is what's bothering you call Aflac and insure each other.
     
  4. Davidford7

    Davidford7 Member

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    Jun 11, 2012
    Fort Worth
    Why have a LLC if your going to personally guarantee anything? LLC are individuals and stand alone. I have never signed a lease for any of may companies personally. Times are hard and there is a lot of vacant spaces out, more spaces than people to fill them.
    If you went to the expense to form the LLC then use it.

    David
     
  5. SignProPlus-Chip

    SignProPlus-Chip Active Member

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    Feb 19, 2012
    Bluffton, SC
    Exactly my point. We formed an LLC to hel protect us and our personal assets, why would we now lay them on the line in direct opposition of the protection the LLC offers us.

    Why should we sign on the dotted line and stack the deck in the lessor's favor?
     
  6. g&eprinting

    g&eprinting Member

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    Jul 21, 2011
    Everett MA
    He probably wants NNN too.

    Sucks when you find the right place can't come to an agreement.

    Try to stay away from NNN and long leases. Stick to your LLC.

    NNN if the taxes go up it could all come out of your pocket.
     
  7. Locals Find!

    Locals Find! Very Active Member

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    As someone who works in Real Estate you would be a fool to do this. We would never tell a client to agree to that (unless it was our rental of course) My Great-Grandmother who ran a shopping center till the day she died never asked for a personal guarantee she just wanted 5 years rent held in an escrow account if you were a new business.

    You could probably get the landlord to waive his demand if you agreed to put up 1 years worth of rent in an escrow account that he can make draws from every month for the rent. This would ensure him your serious and you also know your covered over the next year. Talk to your attorney and your bank about how you could set something like that set up. Then approach the landlord.
     
  8. Davidford7

    Davidford7 Member

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    Our last lease was for one of our Segway stores. It was 2500 sq feet new build out, landlord gave $35.00 sq ft for build out, I paid first and last with no personal guarantee. We paid $18.00 sq ft plus triple net of $4. This was a little below market. No other up front money.
    I have always had to pay triple net.

    David
     
  9. g&eprinting

    g&eprinting Member

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    I was about to get a place with triple net but we were agreeing on in the lease would state if taxes go over x amount landlord would cover that amount.
     
  10. Davidford7

    Davidford7 Member

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    Jun 11, 2012
    Fort Worth
    I agree most leases do have a cap on triple net.
     
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