Question:
Dear Jennifer,
When I sell my practice, I have to transfer my lease too. I have a personal guarantee. What happens to that? Will my personal obligation on the lease away?
Thanks,
Dr. N
Answer:
That’s a great question. The answer really depends on what your landlord is going to agree to and what the terms of the assignment provision in the existing lease say. Are you authorized to assign your lease without your landlord’s consent or consent that cannot be unreasonably withheld? Does the personal guaranty have a provision it survives any assignment? If landlord has leverage over you and has control over whether or not you can assign, Landlord may not release a personal guarantee, even if the party taking over the lease has better credit worthiness or a higher valuation and stronger financials. During the deal process, however, we would approach the landlord early and try to prove to the landlord they will be a better position with a new tenant and that your personal guarantee will not be needed. If we can’t get you off the personal guarantee, at a minimum, our suggestion will be for very strong indemnification language from the buyer for any liability that may arise after the closing date. We may also want to discuss escrowing some money to protect you against any lease exposure…
We can walk through in greater details as we talk about your deal.
Have a question for Jennifer? Email is best. You can reach her at Jennifer@Kirschenbaumesq.
