3 Ways to Handle The Personal Guarantee For Your Kansas City Office Space for Rent
Commercial leases for office spaces for rent in Overland Park, KS, often require tenants to put up a personal guarantee, which holds the individual business owner responsible for paying back their business loan in the event that they break the lease. These personal guarantees are becoming more and more common in commercial real estate leases as the result of a tougher economic market, and landlords are often unwilling to budge on this requirement.
However, even if you cannot eliminate the personal guarantee completely, there are ways to mitigate its effects. Here are a few points to negotiate with your landlord to make the personal guarantee a little more reasonable and less of a weight on your shoulders, as suggested in the article “Personal Guarantee For A Commercial Lease”:
- Ask for a time limit. This is one of the most basic and important steps for negotiating personal guarantee terms. With a personal guarantee, a landlord is really just looking for some sign that you are a reliable tenant who will not default easily, so keeping the personal guarantee in place for part of the lease will work just fine to establish a track record of reliability. If your lease term is five years, for example, try to ask for only a three year personal guarantee period.
- Limit the period of rental payments after termination. Another limit you can place on this guarantee is stipulating how long you have to pay rent for in the event that you default on the lease. If a tenant defaults with a few years left in their lease, there is a legal precedent of courts only requiring former tenants to pay rent for the reasonable amount of time (depending on the commercial real estate economy) that it should take the landlord to find a new tenant for the space. By setting this amount of time upfront—for example six months to a year—you can avoid all of the drawn out and costly legal proceedings that would be necessary to determine it after breaking the lease.
- Provide a letter of credit. If you do have good finances, sometimes landlords will accept a letter of credit in place of a personal guarantee for a specific amount of rent. Landlords can then use this letter of credit to recoup some losses in the event that you leave the property. This option is yet another way to reassure the landlord that you will be a stable and reliable tenant without having to put to much of your personal finances on the line.
These are just a few basic ways that you can reduce the weight of your lease’s personal guarantee. Personal guarantees are definitely an area of leasing where your business could benefit from the insight and expertise of a broker or lawyer. Professionals who know the commercial real estate market might be able to help you smoothly negotiate these terms or come up with even more alternatives.
Want to find out more about properties available in an office park in Kansas? If your business is thinking of renting commercial property in Overland Park, KS, give us a call at 913-685-4100 to find out more about the spaces available in our office park in Overland Park, KS!