Signing a lease.. Personal Guarantees?

[ammonation]

In most of your experience, who here has been required to sign a personal guarantee to get a lease, on top of a security deposit? What was you average deposit, 1 1/2 rent?

I have encountered these numerous times in indoor shopping malls. It saved my ass NOT having one it 1 mall, granted I lost my very large security deposit. Just curious as to how leases outside of major corporate shopping centers work.

[TXCraig1]

No PG's unless you are already all in and have nothing else to lose.

[pizzablogger]

No PG's unless you are already all in and have nothing else to lose.

+1

[Pappy]

I have owned one restaurant, my roommate has owned three, and his partner a few more, and I consider myself pretty wired into the local restaurant scene.  It is my experience that a landlord will almost always demand a personal guarantee. 

Landlords are not stupid.  If a lease is shielded, as it were, from the owner's assets by a corporate structure, the landlord has little ability to enforce lease provisions should an owner chose to walk away from his business.  Granted, the landlord could put a lien on remaining restaurant assets, but in reality those tend to be minimal, and the landlord would probably be down a ways on the claim list, with local government (unpaid sales tax, etc.) at the top.

That being said, everything is negotiable, and a landlord desperate for a tenant in the post-2008 economic environment might be amenable to discussion of the issue.  It helps to be highly capitalized, or have a solid track record with other restaurants or businesses.  The landlord has to be super-confident that your business will be around for the entire term of the lease.  If you are a thinly capitalized newbie, the landlord may be willing to take a risk on you, but he will want that personal guarantee.

[La Sera]

I agree with Pappy.

I've never seen a non-chain not need a personal guarantee or guarantor, but I'm sure it happens. It all depends on the market. Some high end malls require up to a full year deposit for a sole proprietor with no existing location, others less. I wouldn't consider it a deal breaker. If you check around, you might find some form of guarantor insurance available that  the landlord accepts.

No site or negotiation is the same. The value of the location drives the negotiation for both parties.

[jjerrier2450]

For a first time independent restaurant owner it is pretty tough to talk a landlord out of a personal guarantee in addition to security deposit.  However you can generally negotiate some type of fixed dollar amount that is guaranteed and have that guarantee "burn off" or reduce during the lease term.  As long as you pay your rent, the PG will reduce and will completely disappear maybe by mid-term.  We are close to signing a lease for our second space, and even though we are pretty successful, the landlord is still requiring a PG.  I'm not worried about making the rent payments, so it's not a huge deal for us - but we do have the burn off provision in.  For us - the location is one we absolutely want, so we're willing to roll over a bit on the PG as we feel it's minimal risk.  But as others have said...it's all negotiable.  Figure out what the total base rent liability is during the initial term - and then pick a number that maybe represents half of it and have it reduce to nothing by the mid of the initial term.  Confusing enough?

[ammonation]

I agree with Pappy.

I've never seen a non-chain not need a personal guarantee or guarantor, but I'm sure it happens. It all depends on the market. Some high end malls require up to a full year deposit for a sole proprietor with no existing location, others less. I wouldn't consider it a deal breaker. If you check around, you might find some form of guarantor insurance available that  the landlord accepts.

No site or negotiation is the same. The value of the location drives the negotiation for both parties.

Oh I definitely know indoor shopping centers require personal guarantees to get into. I have 2 stores in major NJ malls.

I am looking at retail space outside of malls, might not even be a strip center, could be main street USA type store.

[ThePizzaBiatch]

In most of your experience, who here has been required to sign a personal guarantee to get a lease, on top of a security deposit? What was you average deposit, 1 1/2 rent?

I have encountered these numerous times in indoor shopping malls. It saved my ass NOT having one it 1 mall, granted I lost my very large security deposit. Just curious as to how leases outside of major corporate shopping centers work.

I lease out two multi-tenant buildings.  Rarely do I let anyone off without a PG.  It's bad business on my part.  If someone isn't willing to stake their NW on their concept, why should I risk it?  On the few occasions that I've worked without a PG, I've done extensive background and referencing.  From what I can discern, you've backed out on leases before and not held up your contracts.  With that information, I'd definitely not work with you without a PG, regardless of the security deposit.

[dhs]

As others have said, everything is negotiable. I'd add that the devil is in the details.

Do find out what is the norm in your area. Each landlord and each lease will have differences but if these are substantially different from the norm, it would be a red flag for me. In NYC, you won't get a commercial lease for a small business without a personal guarantee. Here, these have morphed into something known as a 'good guy clause'. The contents of each is varied but the usual purpose is that you personally guarantee that you will pay rent and stay current, take care of your responsibilities and in turn you can get out of the lease by turning in the keys with the terms spelled out in the clause. It really is for the landlord's protection.

MAKE ABSOLUTELY SURE YOU HAVE A LAWYER THAT IS VERY EXPERIENCED WITH COMMERCIAL LEASES IN YOUR AREA!!!!!! Check their references and/or get a recommendation from someone you can trust.