Negotiating Limited Personal LiabilityIn lease negotiations, an owner will want to have the best tenant credit possible to guaranty the lease and the corresponding financial obligations. Additionally, the tenant will want to eliminate or minimize any personal liability required by the property owner in the lease agreement. http://www.fredrsuttonrealestate.com/

One of the most successful strategies used to eliminate or minimize the personal liability of the tenant is to have a corporate entity sign the lease as tenant, and to not sign any personal guaranty or to provide a limited personal guaranty. When applying this strategy, a healthcare professional will normally retain legal counsel to create a new corporate entity, and then the corporate entity will sign the lease as tenant and provide a corporate guaranty to the property owner. The corporate guaranty will be for the entire term of the lease and for any renewals.

The property owner will usually request that the individual(s) that own the corporate entity also provide a personal guaranty(s) for the entire length of the lease and for any renewals. In some cases, the property owner will not agree to a lease unless a personal guaranty is provided by the individual who owns the corporate entity. However, as a tenant, the goal of negotiating this provision is to either eliminate the personal guaranty or to minimize it. For example, if the tenant desires a ten year lease agreement, and has already agreed to provide a corporate guaranty, then the individual might offer only a three or five year personal guaranty. From a business perspective, so long as the duration of the personal guaranty provides financial protection to cover the property owner’s capital risk of tenant finish out funds, leasing commissions, and other landlord direct capital costs, it is a reasonable request in lease negotiations. If the owner further indicates that a certain return on the capital invested in required, the tenant then should also consider this point and access what is reasonable for additional guaranty purposes. Through this negotiation process, the property owner’s capital is protected, at a minimum, via a corporate guaranty. And with other leases, the property owner’s capital is protected with both a corporate and personal guaranty. And finally, from a tenant’s perspective, personal liability is either eliminated or minimized, and the lease can still finalized with the property owner.

http://www.fredrsuttonrealestate.com/