Every landlord prefers to have the full term of their premise lease personally guaranteed by the prospective buyer of the business or by a prospective new tenant. It has surprised me over my thirty-five plus years spanning my careers both as a business owner of as many as ten retail and service facilities at one time and in business and real estate brokerage how some lawyers who may only occasionally deal in business and real estate transactions on behalf of their clients do not realize there may be good and acceptable alternatives that may be negotiated with a landlord.
Let’s examine a lease term of ten years where the landlord requests a personal guarantee by the prospective business buyer or tenant and requires a spousal guarantee as is quite common. There are several responses to this, yes, no, maybe, and yes but. Yes but may be a winner.
The following are a several scenarios that I have successfully negotiated over the years on behalf of my clients. Let me not forgot to mention that I hold four real estate brokers licenses, one each in the State of Maryland, The Commonwealth of Virginia, The State of Delaware, and The District of Columbia.
• 3 year personal guarantee with no personal guarantee on the remaining term
• A rolling one year guarantee whereby at any point in time where the tenant gives notice to vacate to the landlord than the tenant will be liable for one more year from the date of notice
• Or as in a deal I have closing very soon and in spite of the fact that the seller has been in this 5,000 square foot space for 32 years with full personal guarantees the landlord has just agreed to our proposal for a ten year lease with a $100,000 maximum personal guarantee from the date of notice to vacate by the new business owner / tenant.
In other words, be creative. Just because a landlord emphatically states or writes that they require a full guarantee with a spousal guarantee with a shorter lease term than you want this should not preclude you, your broker, or your attorney from making a written counter offer with terms and conditions that may be more favorable to you. The key is being flexible, creative and be willing to compromise and often times you will lessen your lease liability and obtain better terms than you may have expected.