How to Avoid or Limit Personal Guaranties - Part One
By Stuart A. Heller
Landlords often ask for a personal guaranty of a tenant’s compliance with a lease when the proposed tenant is some form of limited liability business entity such as a corporation or limited liability company. The guaranty is routinely sought from each of the tenant’s owners. Here are some suggestions on how to avoid or limit such personal liability:
1. Try to eliminate the personal guaranty requirement from the proposed lease based on your company’s financial strength and experience.
2. If that doesn’t work try to limit the period of the guaranty to less than the term of the lease, perhaps the first two years, so long as during that period your company complies with all of the lease requirements.
3. You can also try to limit the dollar amount of the guaranty, perhaps to six months base rent plus any monthly additional charges. Justify this on the ground that the landlord is obligated by law to mitigate its damages arising from a tenant’s default, and that six months should give the landlord enough time to find a new tenant. At some point you might find it more attractive to pay that fixed amount to terminate the lease than to be stuck with liability for uncertain damages for the balance of the lease term.
COMING NEXT: How to use a letter of credit to limit your personal liability.
With over 35 years experience Stu Heller helps his clients achieve their business objectives, stay out of trouble, and have more time to focus on their strengths. He can be reached at 206-623-0579, fax 206-682-7972, heller@theleasinglawyer.com and hellerlaw@aol.com. His office is at 1325 4th Avenue, Suite 940, Seattle, Washington 98101, and website http://www.theleasinglawyer.com/. Be sure to consult your lawyer before applying any of the above to a particular situation. © 2007 Stuart A. Heller
