When you’re a building owner signing a lease with a new tenant, when should you consider having them sign a personal guarantee along with the lease? If you’re renting a home or an apartment unit to someone, this question will normally not come into play, because typically the renters of these types of properties are already signing under their own personal names on the lease, and they’re not signing under the name of a corporation.
But when you’re renting commercial property to a corporation, such as renting an office, industrial, or retail space, when should you ask for the president or for one of the other senior officers of the company to sign a personal guarantee of the lease? Typically you will do this when the company is a new or a young corporation within its first several years of operation, or when you look at their financial statements and you’re concerned that financially speaking, they may not be strong enough to endure paying you rent for the entire duration of the lease.
In addition, another question to ask yourself is, “If this tenant defaults on the lease and stops paying me rent, will I then be suing them for damages for the remainder of the unpaid rent due to me under the lease?” Because if your answer to this question is “No”, then it won’t really matter whether or not they’ve personally guaranteed the lease.
But at the same time, a tenant being willing to sign a personal guarantee to a lease makes a statement about their own confidence level in their ability to fulfill the terms of the lease. If they’re afraid of signing the guarantee, this can then indicate that they’re concerned about their own company’s ability to pay you the rent for the entire term of the lease, and they just don’t want to be held liable for this personally. In addition, they might consider it an insult that you don’t believe in the strength of their own company, too, even though their financial statements indicate that you probably should be concerned.
However, at the same time, if the tenant is a well-known public company or a company that has been in business for many years, and they have solid financial statements, they will most certainly have no interest in signing a personal guarantee with you, and you insisting on getting one would most likely be a deal killer.
Utilize your own judgment when insisting on personal guarantees, have your own standards for when you will be requiring them, but remember that they mean relatively nothing if you don’t intend to take legal action to get paid the remainder of the rent that will be due to you under the lease.
