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To Guarantee or not to Guarantee a lease?

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I ran into a brief discussion on Twitter as to how to sign a lease (they have to be brief with a 140 character limit). Should you use your company name or personal name on the office lease?  I found these responses at Business Seek, a small business weblog:

"NO you use your tax ID number EIN. You fill paperwork out in name of corp. and you sign as president. Only need to include personal info if you make personal guarantee."

"Any time you do business you HAVE to treat yourself as an employee, you NEVER personally guarantee anything. this way the company goes under you as the President unless gross negligence on your part like you left with the cash are not liable for the expenses of the company. "

Both good advice, but both pretty naive especially when it comes to small businesses. It is unusual when a landlord does not require a personal guarantee no matter what your business structure unless the term is a month to month and there is enough of a deposit to cover any midnight moves. If you were to never personally guarantee a lease or rental for a small business, there would a very limited choice of alternatives.

Trick of the Trade

What we try to do is place a ceiling on that personal guarantee.  An example of this would be to guarantee up to 3 months worth of rental. This would be enough to cover any landlord expenses related to their cost of your acquisition, such as brokerage fees. If there are any significant tenant improvements involved, some sort of amortized guarantee could be created where the amount of the guarantee is reduced over the term of the lease. You'd probably still need to add some period of rent on top of this, but you could also negotiate to amortize reduction in this over the term of the lease. A lease guarantee is a liability that you should show on your personal financial statements. So try to minimize them as much as possible.

 

General , Lease Negotiations , Office Space , Twitter

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