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  • Writer's picturePeter Lamont, Esq.

Strategies to Negotiate Out of a Personal Guaranty In a Commercial Lease

Updated: Dec 19, 2023

Strategies to Negotiate Out of a Personal Guaranty In a Commercial Lease

Strategies to Negotiate Out of a Personal Guaranty In a Commercial Lease

Negotiating a personal guarantee out of a commercial lease agreement can be challenging. When entering into lease negotiations, it is important to understand that the landlord’s primary concern is to mitigate risk. This concern often prompts the inclusion of a personal guarantee in the lease agreement, especially when dealing with new or small businesses with limited financial history. However, there are several strategies that can be employed to either remove or reduce the impact of a personal guarantee in a commercial lease.


Understand the Landlord's Perspective

Understanding the landlord's perspective is key in these negotiations. Landlords are more likely to consider removing a personal guarantee if they feel confident in the tenant's business viability and commitment to the property. Building a positive rapport and demonstrating a professional, reliable demeanor can go a long way in successful negotiations.


Build a Strong Case

The first step in negotiating out of a personal guarantee is to build a strong case for why the personal guarantee is unnecessary. This can be achieved by demonstrating the business's financial stability and track record. Providing comprehensive financial statements, evidence of consistent revenue streams, and a solid business plan can help convince the landlord of the reduced risk of forgoing the personal guarantee. It is also beneficial to highlight any previous successful lease relationships, showing a history of meeting lease obligations without issue.


Increase Security

If the landlord is still hesitant, proposing alternative forms of security can be a viable strategy. This might include offering a larger security deposit or pre-paying rent for an extended period. Such alternatives give the landlord a tangible security measure, potentially making the personal guarantee unnecessary.


Remove Specific Terms

Another approach is to negotiate the specific terms of the personal guarantee rather than removing it entirely. This might involve limiting the guarantee to a certain amount of time, thereby reducing the potential financial exposure. For instance, suggesting that the personal guarantee diminishes over time as the landlord gains confidence in the tenant's ability to meet lease obligations can be a persuasive compromise.


Good Guy Clause

In situations where removing the personal guarantee is not feasible, negotiating a "good guy" clause can be an effective fallback. This clause limits the personal guarantee to instances when the tenant fails to vacate the property after breaching the lease. It ensures that as long as the tenant vacates the premises in a timely manner and in good condition upon defaulting, the personal guarantee does not come into effect.


In practical terms, the "good guy" clause declares the tenant's commitment to maintaining the property in excellent condition and vacating it responsibly in case of a lease breach. This commitment is particularly appealing to landlords who may have previously encountered challenges with property damage or protracted eviction processes. It assures them that the tenant is vested in the property's well-being, thereby reducing potential conflicts or mishandling.


It is also beneficial to discuss the possibility of tailoring the "good guy" clause to specific situations. This can include stipulating conditions under which the clause would be activated, thereby providing clarity and a sense of fairness in the agreement. Such specificity limits the tenant's risks and sets a clear framework for the landlord, ensuring that both parties understand their responsibilities and rights.


Retain an Attorney

Lastly, seeking professional advice is crucial. A knowledgeable attorney or real estate professional can provide valuable insight into the negotiation process. They can help tailor a negotiation strategy that considers the specific nuances of the lease and the landlord's concerns, thereby increasing the likelihood of a favorable outcome.


Contact us today to discuss your commercial lease needs and protect your business interests. Let our expertise be your advantage in securing a favorable lease agreement.

 

For detailed insights and legal assistance on topics discussed in this post, including how to avoid commercial lease disputes, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide expert legal advice. Contact us at (201) 904-2211 or email us at info@pjlesq.com.


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Peter J. Lamont is a Top-Rated New Jersey Business Attorney

About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.


Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magainze and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.


As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​

 

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