Resolving Liability for a Personal Guarantee on a Commercial Lease
A new start-up business can be exciting, and getting a new office, retail shop, restaurant or other place of business is always an important first step. If you already have an existing business, you may find yourself negotiating a lease renewal or expanding to take on additional leased space.
One thing common to almost all of these negotiations is the landlord’s desire for the tenant to sign a personal guarantee of the lease. Most small businesses in Arizona are an LLC or other form of corporate structure that protects the individual members or shareholders from liability in most cases when the business can meet its financial obligations.
Landlords recognize this and will often request or even require a personal guarantee be executed by the individual member(s) before a lease will be granted. This is particularly true of small businesses or those with limited financial history.
The Decision of Whether to Sign a Personal Guarantee for a Lease
A commercial landlord’s attorney would likely tell them to get a personal guarantee for the lease. A commercial tenant’s lawyer would likely tell them not to sign a personal guarantee on a commercial lease. Regardless, tenants do sign personal guarantees with some frequency in Arizona. There are a variety of reasons, including possible incentives like a reduced security deposit. If the rent is always paid, the personal guarantee won’t matter much. But what if it’s not?
Defenses Available to the Personal Guarantor on a Commercial Lease
If you signed a personal guarantee for your business lease, or for someone else’s business, and the rent isn’t paid, you could be sued for the total amount of rent outstanding. The good news is there may be a number of legal defenses that come into play to protect you.
For example, in most cases, the commercial landlord has a duty to mitigate his/her damages. This means that the landlord will have to try to re-rent the property as soon as possible and for a reasonable amount. The landlord cannot simply list the property for rent at some exorbitant rent amount just to run up the damages amount against you.
And there may be other defenses available. Did the landlord perform all of their obligations under the lease? If not, did that cause you loss of profits or other damages? A thorough and careful analysis of the lease agreement by a skilled attorney can yield additional defenses that may be available.
Defending a Commercial Lease Lawsuit
If you’ve not paid rent and the landlord has sued for the balance of the rent owed under the lease, it is important that you act quickly. Failure to respond appropriately to a lawsuit filed in Arizona can have grave consequences. A default judgment could be entered against you and your spouse, which could give way to wage garnishment or bank account garnishment, among many other collection tactics.
We know how to defend personal guarantors on a lease and can develop a comprehensive strategy to limit your liability.
Negotiating a Settlement on a Personal Guarantee
Our firm is skilled at using our knowledge of the law and commercial leases to effectively negotiate a settlement of personal guarantee lease debt for our clients. We help guarantors settle their debt for a fraction of what the landlord is claiming. And we do this without filing bankruptcy.
If you think you may be liable on a personal guarantee, or if you’ve been sued, contact us today for a free consultation with an attorney.