Managing Lease Liability: The Limited Personal Guarantee

The most recent Veritas article, as published in Foodservice Monthly

Andrew J. Kline - Foodservice Monthly
When buying or developing a new restaurant, you will likely form a limited liability company or corporation to be the owner of the restaurant and the tenant under the lease with the landlord for the business premises. The purpose of such entities is to limit your personal liability such that you will not be personally liable for the debts and obligations of the restaurant business beyond your capital contributions.

The most important asset and the biggest liability of your new business is likely to be the lease of the premises. If you are not an established operator with multiple successful locations, or if the premises is owned by an institutional landlord in a particularly desirable location, it is typical for the landlord to require your personal guarantee of the rent and other tenant obligations under the lease. What this means is that if your business fails to pay the rent, or otherwise defaults under the lease, you will be personally liable. The landlord can then sue and get a judgment against you for unpaid rent, and then attach your personal assets to satisfy the judgment. In today’s market, even for a modest sized location in a developing neighborhood, your liability might easily exceed a million dollars for a lease with a ten year term. You are, however, only liable for the landlord’s actual losses. If the landlord is able to quickly re-rent the premises after your default, your actual liability will be much lower than that maximum amount.

In order to manage your liability, you might bargain with the landlord for a limitation on the scope of the guarantee liability. There are three principle forms of guarantee limitations. The first form has you guaranteeing some early portion of the lease term with your guarantee liability terminating after a certain period, provided the tenant entity pays the rent and otherwise performs under the lease. For example, you might agree with the landlord that you will guarantee the first three years of the lease term, and at the end of lease year three, your personal liability will terminate. By the end of year three, your business will have been established, you will have paid rent, and the landlord will have recouped some portion of the brokerage commissions and other expenses of leasing you the premises.

Another form of limited guarantee is sometimes referred to as a “floating” guarantee, which means that you are personally responsible for a certain sum of money or a certain number of months rent after a default. For example, your liability might be capped at one year’s rent. If there is a default by the tenant entity at any time during the lease term, your maximum liability will not exceed an amount equal to one year of rent payable by the tenant entity under the lease.

A third form of limited guarantee is frequently called a “good guy” guarantee. The pure good guy guarantee, more prevalent in the New York area, requires that you be personally liable only for amounts due under the lease through the date you surrender the premises to the landlord after default by the tenant entity under the lease. Upon surrender of the premises your liability terminates, but you are liable for all amounts owed for rent and other lease obligations through the date of termination.

Pure good guy guarantees are rare in the DMV area. More common is a good guy guarantee combined with an additional limitation. For example, the landlord might agree to a good guy limited guarantee with a one year floater. That means you are personally liable for all amounts due through the date of surrender, plus no more than one year’s rent from the date of surrender.

There is no “standard” personal guarantee limitation. Like all provisions of a commercial lease, the guarantee and any limitation on the guarantee should be negotiated along with the other business terms of the lease. You should raise the issue with your real estate professional or attorney early in the process to minimize your liability to the greatest extent possible.

 

 

1224 replies
  1. BestBrandy
    BestBrandy says:

    I have noticed you don’t monetize your page, don’t
    waste your traffic, you can earn additional cash every month because
    you’ve got hi quality content. If you want to know how to make extra $$$, search for: Ercannou’s essential adsense alternative

  2. RosauraBold
    RosauraBold says:

    I have checked your blog and i have found some duplicate content,
    that’s why you don’t rank high in google’s search results,
    but there is a tool that can help you to create 100% unique content,
    search for: SSundee advices unlimited content for your blog

  3. fiat viagra commercial
    fiat viagra commercial says:

    Hi, I do believe this is an excellent blog.
    I stumbledupon it 😉 I’m going to revisit yet again since I bookmarked it.
    Money and freedom is the greatest way to change, may you be rich and
    continue to help others.

  4. free trial of viagra
    free trial of viagra says:

    One thing I want to discuss is that fat burning plan fast may be possible by the perfect diet and exercise. An individual’s size not only affects appearance, but also the general quality of life. Self-esteem, major depression, health risks, and also physical capabilities are damaged in fat gain. It is possible to just make everything right but still gain. If this happens, a condition may be the offender. While a lot food instead of enough workout are usually to blame, common health conditions and widespread prescriptions can greatly add to size. Many thanks for your post here.

  5. how much is cialis
    how much is cialis says:

    I’ve been browsing online greater than three hours
    lately, but I by no means found any interesting article like yours.
    It’s lovely worth sufficient for me. Personally, if all website owners and bloggers made excellent
    content material as you did, the internet will probably be much more useful than ever before.

  6. MalibuKutt
    MalibuKutt says:

    Ahaa, its fastidious conversation regarding this post at this place
    at this webpage, I have read all that, so now me also
    commenting at this place.

  7. free samples of cialis
    free samples of cialis says:

    Hi would you mind stating which blog platform you’re using?
    I’m going to start my own blog soon but I’m having a difficult time deciding between BlogEngine/Wordpress/B2evolution and
    Drupal. The reason I ask is because your design seems different then most blogs and I’m looking for something
    completely unique. P.S My apologies for being off-topic
    but I had to ask!

  8. cost of cialis 5mg
    cost of cialis 5mg says:

    I will immediately grab your rss feed as I can’t
    in finding your email subscription link or e-newsletter service.
    Do you’ve any? Please let me realize so that I could subscribe.

    Thanks.

  9. how much does cialis cost without insurance
    how much does cialis cost without insurance says:

    I’ve been browsing online more than 2 hours today, yet I never found any interesting article like
    yours. It’s pretty worth enough for me. In my opinion, if all web owners and bloggers made good content as you did, the web will be much more useful than ever
    before.

  10. women in viagra commercials
    women in viagra commercials says:

    It is perfect time to make some plans for the future and it is time to be happy.
    I have read this post and if I could I want to suggest
    you few interesting things or advice. Perhaps you could write
    next articles referring to this article. I desire
    to read even more things about it!

  11. 99Carmella
    99Carmella says:

    I can see that your blog probably doesn’t have much visits.
    Your articles are awesome, you only need more new visitors.
    I know a method that can cause a viral effect on your site.
    Search in google: dracko’s tricks make your content go viral

  12. Charleslob
    Charleslob says:

    wh0cd18306 [url=http://buy-clomid.us.org/]Clomid[/url] [url=http://synthroidbestprice.us.com/]synthroid[/url] [url=http://kamagra18.us.org/]kamagra[/url] [url=http://prednisolonebestprice.us.com/]prednisolone 20 mg[/url] [url=http://tadalafilgeneric18.us.org/]buy tadalafil cialis[/url] [url=http://levitra18.us.com/]LEVITRA[/url] [url=http://cialiscost2018.us.com/]cialis cost[/url] [url=http://viagra18.us.org/]Canada Pharmacy Viagra[/url] [url=http://sildenafilprice18.us.com/]sildenafil citrate 100 mg[/url] [url=http://cialisbestprice.us.com/]40 mg cialis[/url] [url=http://sildenafilonline18.us.com/]sildenafil no prescription[/url] [url=http://zithromax2018.us.com/]zithromax azithromycin[/url] [url=http://buymobic.us.org/]Mobic 15 Mg[/url] [url=http://propeciacheap18.us.org/]finasteride medication[/url] [url=http://buy-prednisone.us.org/]20 Mg Of Prednisone[/url] [url=http://colchicine2018.us.com/]COLCHICINE[/url] [url=http://retina2018.us.com/]tretinoin[/url] [url=http://prozac18.us.org/]Buy Prozac[/url] [url=http://ventolinprice18.us.com/]cheap ventolin inhalers[/url] [url=http://lisinoprilbestprice.com/]lisinopril 20 mg[/url] [url=http://doxycyclinebestprice.us.com/]Vibramycin[/url] [url=http://valtrex18.us.org/]generic valtrex[/url] [url=http://tadalafilcheap18.us.org/]Tadalafil 5 Mg[/url] [url=http://buy-baclofen.us.com/]BACLOFEN[/url] [url=http://kamagraonline18.us.com/]kamagra online[/url] [url=http://cephalexinbestprice.us.com/]cephalexin best price[/url] [url=http://hydrochlorothiazide2018.us.com/]hydrochlorothiazide over the counter[/url] [url=http://valtrexprice18.us.com/]valtrex generic[/url] [url=http://propeciabestprice.us.com/]generic propecia usa[/url] [url=http://synthroid2018.us.com/]SYNTHROID PRICES[/url]

  13. Charleslob
    Charleslob says:

    wh0cd232803 [url=http://tetracycline18.us.org/]order tetracycline online without prescription[/url] [url=http://buy-kamagra.us.org/]Buy Kamagra[/url] [url=http://bupropion.science/]bupropion[/url] [url=http://prednisone18.us.com/]prednisone[/url]

  14. top 5 best swiss army knives
    top 5 best swiss army knives says:

    I used to bbe гecommended tһis bblog via mу coᥙsin. I’m
    now not positive whether or not this suhmit iis written by way of him as no one ele knlw such distinct about
    my difficuⅼty. You are incredible! Thanks!

  15. Charlene Garriott
    Charlene Garriott says:

    I am only writing to let you know of the wonderful discovery my girl had going through the blog. She noticed a good number of pieces, including what it is like to possess an excellent teaching spirit to have many more without hassle know precisely a variety of hard to do issues. You actually surpassed our expectations. Thank you for rendering those warm and helpful, trusted, educational and in addition easy guidance on that topic to Tanya.

  16. AlfredLyday