Provided by: Jennifer Kirschenbaum, Esq.
June 15, 2021
I am signing a new lease for my medical practice and the Landlord wants me to sign a personal guaranty. Is this typical?
- Dr. J
Most landlords who lease office space to private practices or closely held companies (those with a few owners) will require some form of Personal Guaranty from an owner of the tenant company to back up the obligations of the tenant should the tenant be unwilling or unable to pay rent. These obligations are normally what is referred to as joint and several, which means that, in the event of a default under the lease, the Landlord can look to either or both of the tenant and guarantor without first trying to collect from the other.
While a landlord will often ask for a full guaranty of the entire lease term, there are ways to limit the obligations of a personal guarantor. These might include a Good Guy Guaranty, or a sunset of obligations after a period of time.
A Good Guy Guaranty allows a tenant to give a landlord notice of its intent to surrender the premises on a specific date identified in a Surrender Notice, which date may be as soon as 60 or 90 days or as long as 180 days, or more, depending on the negotiated terms of the lease. On the Surrender Date, the tenant is required to deliver keys to the landlord, pay all outstanding balances of rent and additional rent due under the lease through the Surrender Date, cure any outstanding defaults or other open lease obligations (which might include the close out any open building permits), and vacate the premises. If a landlord provided for a rent abatement or paid a broker’s fees at the onset of the lease, some landlords might require the repayment of any free rent or broker’s fees, or at least the unamortized portion of such sums, as a condition of surrender. Please keep in mind, however, that the surrender of the premises and the release of the guarantor, DOES NOT release the underlying obligations of the tenant entity unless that is expressly stated in the Good Guy Guaranty, and a landlord is often reluctant to release the tenant from the lease obligations arising after the Surrender Date.
A landlord might also require a full personal guaranty of all lease obligations, but agree to convert or release the guaranty after a period of time. For example, in a 10 year lease, a landlord may require a full guaranty for the first three or five years of the lease term or for a period of 24 consecutive on time rent payments, and then either release the personal guaranty or, more likely, convert a full personal guaranty to a Good Guy Guaranty.
Hope this helps!