In the midst of the COVID-19 pandemic, Americans’ entrepreneurial spirit grew even further. 5.4 million new business applications were filed throughout 2021, 1 million more than the record set in 2020.
With things getting back to normal, 2022 looks set to be an even better year for new business applications. If you’re among those looking to launch a business this year, one of the top things you need to sort out is a location. Finding the right landlord and company lease is critical to the success of your business.
Unfortunately, many commercial property owners are hesitant to lease to startups as these businesses have barely any track record. Many will include additional clauses to make sure they get their rent. One of these clauses is the personal guarantee commercial lease.
In today’s blog, we will tell you all you need to know about this lease.
What Is a Personal Guarantee Business Lease?
A personal guarantee in a business lease is a clause that makes the business owner personally liable for the rent in the event that the company can’t pay. If the company has a hard time making money or doesn’t work out, your landlord could sue you for any unpaid rent from your commercial lease. This is called a commercial lease.
Considering that 90% of startups ultimately fail, it’s easy to see why many landlords insist on a personal guarantee in commercial leases. But these leases offer little financial protection for you as the business owner. The best you can do is negotiate the best possible personal guarantee for the commercial lease.
Tips for Negotiating a Better Personal Guarantee Company Lease
In an ideal world, personal guarantees on commercial leases wouldn’t exist. But this is by no means an ideal world, and the best you can do is negotiate the friendliest terms on your lease. Here are some simple tips for negotiating personal guarantees.
Know What’s Covered
Like residential leases, commercial leases cover much more than just the premises you’re getting. The typical business lease will say who is responsible for making repairs, paying for utilities, and paying for insurance.
Read the lease carefully to get familiar with these little details. This way, you can negotiate the lease better.
Get Professional Help
Certain aspects of business professional help, including business registration, company administration, and legal disputes, are excluded. Another aspect in which it pays to work with a professional is when you’re negotiating something as huge as a company lease.
It’s very likely that the landlord will already have an attorney or a broker on their side to make sure they get the most out of the lease. Trying to negotiate on your own puts you at a disadvantage. Find an attorney to help you get the best possible terms.
Think Long Term
If you’ve identified a space that you like and see yourself using it for many years, opt for a multi-year lease. The longer you’re ready to use the space, the more leverage you’ll have when negotiating your personal guarantee. Most landlords are willing to make concessions the moment they realize the tenant is willing to pay rent for over a year.
Think About Deadlines
One mistake tenants make is waiting until the last minute to negotiate terms on their leases. If you’re coming to your landlord a week before your current lease is over to ask them to make concessions on your personal guarantee, it’s hardly likely they’ll be willing to listen to you.
Think about what you want months before your current lease expires and renegotiate the lease with your landlord. This way, you both have enough time to reach an agreement. If your landlord is unwilling to budge, you have lots of time to find a new place.
Getting Out of a Personal Guarantee Commercial Lease
Ideally, you want to get out of a personal guarantee lease before signing it. But there are still ways to get out of the lease later. Here are the steps to follow.
Review Your Lease Carefully
The first thing you need to do before stepping out of your lease is to review your current lease carefully. Find out whether there are any provisions that address early lease termination, as well as any penalties for doing so. Hopefully, you can find some loopholes or an allowance for your situation.
Talk to Your Landlord
As soon as you’ve sorted out what the lease says and are sure that stepping out is in your best interest, speak with the landlord. They may be willing to negotiate a termination that works best for both parties.
Look for a Replacement Tenant
This option saves your landlord lots of hassle, and it’s likely that they’ll have no trouble releasing you from your lease. Talk to neighboring businesses to find out whether they’re interested in the spot and are willing to take over your lease. You could also advertise the space in other places to find a replacement tenant soon.
Break the Lease Anyway
The final way to get out of your lease is to break it and wait. If you decide to take this route, it’s reasonable to expect that your landlord will sue you to collect the unpaid rent after you leave, so get ready for that.
Deal With Personal Guarantee Company Lease the Right Way
For businesses that opt not to purchase their business space, a company lease can be the best option. Where the business is just starting, the landlord may insist on a personal guarantee on the lease. For this reason, it’s best to get familiar with the concept of a personal guarantee business lease and how to negotiate or get out of one.
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