Are there options to a personal guarantee on a lease?
Are you a new business looking to lease space? Most landlords require you to provide financial statements from your accountant before making decisions on whether or not they’ll lease to you, or how much of a security deposit will be required. If your business is brand new, try and find a space that doesn’t require the landlord to build it out. At minimum, the landlord is going to want a month’s security deposit. For a new business, they could require several months’ worth of rent in the form of a deposit.
If a landlord has to invest a lot of money into the space, they may ask you for a line of credit in their name in the event that the business doesn’t make it. I had one landlord ask for a personal guarantee for the first year of the lease in question—his feeling was that if there was going to be an issue, he’d know within the first year.
On the flip side, we recently came across a lease where the landlord asked the tenant to pay 18 months of rent if they went out of business – as a protection for the landlord. If you’re asked for a guarantee, talk to your landlord about different ways to come to a suitable arrangement for both parties.
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