Several Ways We Reduce Our Client's Personal Guaranty Exposure
More often than not Landlords are going to ask for a personal or corporate guarantee whether you have three or thirty locations. In our experience, guaranteeing a Lease isn't something our clients jump out of bed for, but did you know there are ways to limit personal guarantee exposure? Every deal and situation is different, but the below outlines several ways we reduce our client's exposure:
Corporate Guarantee
Signing a corporate or parent company guarantee is where the parent company is responsible for the tenant’s performance of the Lease rather than the person that owns the company. This generally means the exposure stops at the corporate level and assets held within said entity, rather than assets held personally such as a house, stocks, real estate, etc.
“Burn Off”
A burn off is where the guarantor’s liability compresses or is alleviated after a period of time. Sometimes these burn off over three years other times over five, and are generally subject to Tenant not being in default of the Lease during said period.
Both a personal and a corporate guarantee can burn off.
TI/LC Guarantee
If your company is strong enough, sometimes Landlords will agree to a Tenant Improvement/Leasing Commission Guarantee.
For example, if the Landlord’s leasing commissions and Tenant improvements total $100k, they will cap the guarantor’s liability at $100k. Sometimes this is for the term of the Lease, and other times once Landlords receive $100k the guarantor will be released.
Limited Guarantees
Similar to a TI/LC Guarantee, a limited guarantee is where the guarantor is only liable for a certain dollar amount.
For example, the guarantors maximum liability pursuant to this guaranty shall be limited to three (3) years minimum guaranteed rental, common area charges, tax and insurance reimbursements at the time of the default.
We know you’re busy so we intentionally kept this short and direct. If you have any questions or would like us to expand on any points please click the below link to schedule a time to discuss.
