A landlord wants tenants if they meet this criteria:
1) A personal guarantee means that YOU are personally responsible, and the landlord or franchisor entity can go after your personal assets and bank account. Try a larger security deposit, or sharing the entity financials (after an NDA is signed, of course!). If there is a default, only the legal entity should suffer, not you personally.
2) If you sign a personal guarantee, and you are married, remove the partner. The landlord or franchisor may have access the legal entity and those of the guarantor, but joint marital assets (or separate property assets) that belong to a spouse might not have to be attached.
3) If you’re going to sign a guarantee, try to limit the time period. Set the guarantee to expire after a certain amount of time has passed or upon certain conditions (such as proof of the assets of the legal entity).
4) Alternatively, limit the personal guarantee. A capped amount will indicate the maximum amount of exposure for which the guarantor is personally liable.
A guarantee is a very personal thing. Let’s discuss how to minimize your personal exposure and protect your assets.
But while most owners of smaller office buildings tend to prefer cash deposits, he notes that a cash security deposit does not protect against bankruptcy because it becomes part of the bankrupt estate.
He, therefore, recommends that a security deposit be in the form of a letter of credit, which is an agreement between the bank issuing it and the landlord and so does not become part of a bankrupt estate.
This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.