When signing a Commercial Lease for any amount of time with your tenants, there should always be a personal guarantee in place. When a tenant signs without personally guaranteeing the lease, all you have is an obligation from a piece of paper (corporation) that can be dissolved at any time and you're left with an empty space with no one to account for the loss.
Personal guarantees are also beneficial when negotiating terms with your tenants and enforcing the lease agreement in case of a breach of contract. So, if a tenant builds out the space without the landlord's approval, doesn't carry the necessary insurance, or fails to stay within the framework of the lease in any way, it just makes it that much more difficult to enforce the covenants of the lease if the tenant knows they can leave at any time with minimal to no accountability.
Now, can a landlord still go after a tenant without a personal guarantee for damages to the building or even unpaid rent upon their exit? Well, let's put it this way, I've never seen it happen. However, I'm not an attorney and there may be situations where the answer would be yes. This is why on all contract matters, I always recommend to speak with an attorney. Although the lack of a personal guarantee will make it that much more difficult to recover, every situation is different. There could be a chance that the corporation remains intact and you can recover from the tenant that way.
If the personal guarantee was a matter of negotiation and you simply had to have that tenant or you weren't able to pay the bills that month, at the very least try asking for another month or two of security to help in case of a disaster. I've seen tenants leave spaces completely destroyed and costing the landlord thousands to fix and bring the space back up to a condition that can be considered rentable again. So, if you ask for one month of security with a personal guarantee, go ahead and ask for three months without the guarantee. Again, I always recommend going with the guarantee but if you can't get one for whatever the circumstances may be, at least try to put yourself in a more favorable position. Ultimately, there has to be a trade off if the tenant is asking you to take a larger portion of the risk.
www.allrealtymanagement.com
Personal guarantees are also beneficial when negotiating terms with your tenants and enforcing the lease agreement in case of a breach of contract. So, if a tenant builds out the space without the landlord's approval, doesn't carry the necessary insurance, or fails to stay within the framework of the lease in any way, it just makes it that much more difficult to enforce the covenants of the lease if the tenant knows they can leave at any time with minimal to no accountability.
Now, can a landlord still go after a tenant without a personal guarantee for damages to the building or even unpaid rent upon their exit? Well, let's put it this way, I've never seen it happen. However, I'm not an attorney and there may be situations where the answer would be yes. This is why on all contract matters, I always recommend to speak with an attorney. Although the lack of a personal guarantee will make it that much more difficult to recover, every situation is different. There could be a chance that the corporation remains intact and you can recover from the tenant that way.
If the personal guarantee was a matter of negotiation and you simply had to have that tenant or you weren't able to pay the bills that month, at the very least try asking for another month or two of security to help in case of a disaster. I've seen tenants leave spaces completely destroyed and costing the landlord thousands to fix and bring the space back up to a condition that can be considered rentable again. So, if you ask for one month of security with a personal guarantee, go ahead and ask for three months without the guarantee. Again, I always recommend going with the guarantee but if you can't get one for whatever the circumstances may be, at least try to put yourself in a more favorable position. Ultimately, there has to be a trade off if the tenant is asking you to take a larger portion of the risk.
www.allrealtymanagement.com
written by: Victor A. Abreu