Personal Guarantees in Commercial Leases
Brick and mortar businesses need to choose a physical location. For most new businesses, this means that they need to rent a commercial space. Obtaining a lease can be challenging for brand new companies since they have not yet established credit. Some landlords request personal guarantees in commercial leases. A personal guarantee means that you utilize your personal assets to guarantee the lease. There may be some drawbacks to this option for business owners.
Understanding How Personal Guarantees Work
A personal guarantee means that you will use your own personal property or assets to secure the lease. Your own credit record may be required and you may need to provide proof that you are able to make payments should the company be unable to do so. It is important to know that if you are married, both you and your spouse will need to sign the personal guarantee because your marital property belongs to both of you.
Benefits and Disadvantages of Personal Guarantees
The main benefit of using a personal guarantee for a business lease is the ability to let a commercial property. If your business is new or you have not yet established any credit history you may not be eligible to rent a commercial unit. The major disadvantage of utilizing a personal guarantee is that if you fail to make the required payments your home or other personal assets could be in jeopardy.
Enforcement of a Personal Guarantee
If you are a landlord, you must ensure that your commercial lease is properly written and executed. Standard form leases often do not provide the type of protection necessary and may not address the personal guarantee. It is advisable to have a commercial lease drafted by a qualified commercial attorney. Your lawyer will help make sure that the proper methods of protection are included in the contract.
Resolving Disputes Regarding Guarantees
Personal guarantees and other contract clauses can be a source of disputes between lenders and borrowers. It is always best to have a contract reviewed by an attorney before you sign it. This will help to make sure that your rights are protected and you are not being taken advantage of. If a change is necessary, your attorney will negotiate to make the modification. When a disagreement arises you will need to have the contract reviewed by an attorney. Appropriate legal action may be necessary.
Before you agree to a lease with a personal guarantee clause, contact the experienced lawyers at Udall Shumway to review the contract.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Personal Guarantees, or any other litigation matter, please feel free to contact us at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.