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Can a commercial tenant negotiate a personal guarantee?

On Behalf of | May 22, 2019 | Landlord / Tenant |

Plenty of rental property owners here in California have ended up not receiving the monies promised in leases. In fact, some landlords end up discovering that a tenant broke the lease and moved out in the middle of night. For these reasons, many of them now require prospective tenants to sign personal guarantees, which make them personally liable for the rental payments outlined in their leases. A commercial tenant essentially ends up paying for the bad acts of those who came before them.

Even so, that does not mean that the personal guarantee is not up for negotiation. It may be possible to eliminate the need for it by providing a potential landlord with proof of a good rental history, including consistent and on-time payments, along with evidence of steady income. Some property owners will not be swayed, however.

In those cases, it may be possible to amend the personal guarantee clause in the lease to only hold a consistently paying tenant liable until he or she legally vacates the property. Another option would be for the personal guarantee to expire after the tenant makes a certain number of consistent, on-time payments on the lease. For example, the lease could specify such an expiration after six months into a 12-month lease, two years into a five-year lease or some other mutually satisfactory arrangement.

As is the case with any other lease provisions, a potential commercial tenant should probably not just agree to a personal guarantee without first taking steps to protect his or her rights. A California property owner who wants such protections may also include other terms in the lease that are not exactly tenant-friendly. A future tenant has the right to review anything a landlord expects him or her to sign. Sometimes, a certain location is not worth the monetary and other demands of a property owner, but if it is, it never hurts to attempt to negotiate better terms.