If the Tenant is a business entity, most landlords will require some form of personal guaranty. Without a personal guaranty, a Landlord may have little or no recourse against the Tenant if the Tenant defaults. For example, if Tenant ABC Corp. defaults on its obligation to pay $100,000 in rent and Tenant has no assets then Landlord may be out of luck. In a “full” personal guaranty, an individual (typically a principal owner of the Tenant) will guaranty all of the Tenant’s obligations for the full term of the lease. In a limited “good guy” guaranty, the individual will guaranty the Tenant’s obligations under the lease until the Tenant surrenders the Premises. This helps avoid a scenario where a Tenant remains in possession of the Premises and continues to operate its business without paying rent. The basic form of guaranty (i.e. full v. limited) is often negotiated by the brokers and the specific terms and scope of the personal guaranty are often negotiated between the attorneys.
*Thank you for taking the time to read this article. This article is part of our “Commercial Leasing for Non-Lawyers,” a Blog Series on Commercial Leasing. Other aspects of commercial leasing transactions in New York are discussed in other Parts of this series.
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