personal guarantee commercial lease requirement?

[marthaemmausprophet]

I have a small business in the United States, east coast. We have been using executive offices for the past seven years and now will be renting a 3000 SF commercial flex space, which is a must have to grow. The landlord requires that I sign a personal guarantee, or provide a 6-month security deposit, to lease the space. The lease is a 5 year term and a typical NNN type lease. I already provided my P/L and banks statements, which are really strong. The security deposit ($20,000) will NOT be held in an interest bearing account.

My question is- is this normal? My personal thoughts are: I don't want to open my personal assets in signing the lease; and I don't to write a check for a 6-month security deposit hoping to get the money back in 5 years.

 

[613jono]

@marthaemmausprophet In the past, a personal guarantee on a commercial lease was not common, but since the recession in 2008, it's become much more common.

If you don't like the requirements, find another space.

 

[salmadrid]

@marthaemmausprophet It should be a buyer's market for office space. Just tell them you need better terms to sign. If they won't budge, I'd keep shopping around.

 

[vtkong1]

@marthaemmausprophet Personal guarantees are very common. I wish with every ounce of my being I never signed one. You have absolutely no recourse or leverage when something goes wrong, like a once in a hundred year pandemic. If you ask for help the landlord will say, “no, pay me or I’ll take your house, your car, your dog, and liquidate your bank accounts and future wages.” However 6 months deposit is a joke, you should offer 2 months max.

 

[marthaemmausprophet]

This was helpful - thank you. I just need to determine how I want to handle it.

 

[flabound]

@marthaemmausprophet This isn’t surprising.

But you can always talk with other brokers and see what they have to say about your local market.

 

[charles72]

@marthaemmausprophet Just trying to understand your objection. When you say "I don't want to open my personal assets", do you mean 1) showing the landlord your personal financial picture, or 2) putting those assets at risk through a guaranty?

 

[marthaemmausprophet]

@charles72 I don't want to put the assets on the line.

 

[charles72]

@marthaemmausprophet As a small business owner, YOU really are the business. If you're not around, the business likely fails. You get up every morning determined to make it successful. A lender to you looks for cash flow, takes a security interest in the business assets as a secondary source of repayment, and a personal guaranty as well. A landlord rarely takes an interest in the business assets...if cash flow fails they have no other assets as collateral and have an empty space to try and re-lease. Thus they want a guaranty. It's as much psychological as financial, they want you to not "sleep in late" and jeopardize the "really strong" business. If it's that strong, then a guaranty doesn't really put you much at risk, eh? Unless you don't plan on paying the rent, it's of little personal consequence.

 

[natalie_c]

@marthaemmausprophet Commercial spaces are BEGGING for renters.

I was waiting on the punchline for this.

 

[mgrehab]

@natalie_c Depends on the type of space and where you are. We were looking for warehouse space. Every property has several different parties looking at the same space. There are no available warehouse spaces in our area.

 

[natalie_c]

@mgrehab Wow, EVERYTHING is empty in NJ in the NYC area. There are entire MALLS available. Massive strip malls, giant spaces everywhere

 

[mgrehab]

@natalie_c In the Washington DC area, Amazon has taken every warehouse space they can find. They also acquired an abandoned mall and they are using it as a distribution center. The parking garage is filled with Amazon vans, and the old Sears Tire and auto center is being used to service and maintain the delivery fleet.

 

[natalie_c]

@mgrehab You are in a weird spot.

Years ago, I did the research to expand in the DC from NJ and wanted to make sure we could also serve Baltimore and Annapolis, any chance I branching further out?
It just seems like a already

 

[mgrehab]

@natalie_c There are some warehouse spaces available as well as retail. Retail prices in decent areas are insane + $25/sf/yr. there are some warehouse spaces in Princes Georges county MD which would be perfect for DC , Baltimore and Annapolis. We are in Northern VA and we were focused on a couple geographic areas as they were central to our local business. We could have found space, but delivery locations I can get to in 30-45 minutes would have taken closer to 90 minutes which wasn’t worth the slight discount in rent.

 

[mathewssambo]

@marthaemmausprophet Yea it’s normal, no don’t sign it. They can evict you without cause, without notifying you of the suit. They then can get a default judgement and within 12 days you must vacate unless your lawyer files proper motions to hault. If for whatever reason your lawyer screws up even slightly, you’re now personally on the hook for the entire lease out of your personal funds “fuck you have a nice day” and your only option is to then spend 6 figures fighting it in court for 3 years or file bankruptcy. Fuck personal guarantees and the landlords that demand them.

 

[mgrehab]

@marthaemmausprophet Yep. Pretty normal. The landlord wants to get paid on the contract even if you fail.

We also recently signed a 5 year lease. Our landlord wanted a personal guarantee and a 3 month security deposit. We countered with a personal guarantee for 2 years and a 2 month security deposit, the 2nd month would cover month 18 of the lease.