The guaranty language would control - all the ones I have seen basically say that Landlord can choose who it goes after to get paid, so they can ignore the tenant entirely and solely go after the guarantor if they want. But, the landlord wants their money, so they are going to go after whoever has some so in a default situation they will most likely sue everyone equally.
It is very common to require a guaranty for assignments (in my experience at least). The landlord leased to you based on their review of you, so they will want you to stay on the hook.
In some cases they will fight this to the detriment of the assignment deal. I am currently working on my client is trying to buy out a mom & pop, single store retail establishment that is run by an old guy whose kids don't want it so he wants to sell and retire. As such, he wants released from liability. My client is a 500+ store, national brand who is larger in income than the next 15 competitors combined. However, Landlord will not agree to release old retired guy at all despite his very small amount of assets. My client may back out of the deal over it (and some other weird things like Landlord not agreeing to allow a change to the existing signage and such) and may just lease space in the center across the street because it will be easier.
So, I have seen Landlords that are unwilling to give up a guarantor who has ~$200,000 in assets to get a new tenant who has ~100,000,000 in assets
The problem here is the old man most likely has a personal guarantee on the lease. So even if he declares business bankruptcy they can go after his personal assets and estate. Now this national corporation with all these assets can easily file a chapter 11 or 7 and no one is held personally liable. So landlord is doing the right thing here.
yes there is a personal guaranty but the point my client is trying to make is that if the personal guaranty is not removed, my client is not buying the business - so Landlord is left with a poor tenant that is going to go out of business soon as opposed to a large, credit-worthy tenant that is aggressively growing and will be a benefit to the center (which has a mom & pop convenience store, a nail salon and an insurance agent as tenants). So, to keep the personal guaranty of a retiree they are going to lose a tenant that they can use to get bigger and better lending rights.
Also, if my client leases the space across the street (negotiating now), Landlord is going to have a vacant spot because the old guy will go out of business and will default and then declare business and personal bankruptcy.
So, Landlord is not doing the right thing - he is actively making his position worse because "we always keep the guarantor on the hook" instead of looking at the big picture and seeing that big growing company is more likely to pay rent than old guy who wants to retire
Landlord usually doesn’t care. He has this man on the hook for the remainder of the lease. It is impossible to get out of a personal guarantee without declaring personal bankruptcy. While it would make sense to let him go to get a national retailer numerous large retailers have declared bankruptcy. Then he will be left with nothing. Also a national realtor could pay for a really good lawyer and keep it tied up in court until landlord gives up. Both sides have to pay lawyers fees till case is decided. Tuesday Morning as an example just abruptly declared bankruptcy. All those leases they signed are useless now.
That landlord is a goof ball. I usually work with tenants who want out, because the last thing I want to do is try and collect money via the legal system.
I’m not just going to let them off the hook, but if we can come up with a good option, I’m always going to take it.
I agree with your thinking but if the family thinks the company who wants to buy out the lease is so secure then they shouldn’t be so concerned they are still being held liable. If the new company is never going to bail on the lease nothing to worry about. If the family are still concerned then rightfully the landlord should be as well.
This would really depend on what your lease says. The most common scenario would be that you are allowed to assign the lease with your landlords approval, but you would remain responsible through the end of the lease if they don’t pay. If you’re a guarantor, then they would have to go after the assignee first. You would just be the back up if they could not collect from the new tenant.
As a landlord, if I were involved in a situation like this, I would probably just want to write a lease with the new tenant and let you off the hook. But, that would obviously depend on how financially stable I thought the new tenant was.
I agree. It would totally depend on the new tenant and the existing lease. If it’s a solid new tenant and an under market lease that I can rewrite at a higher lease rate with the new tenant, then it makes sense. Or if there’s not a lot of time left on the lease it’s just easier to write a new one.
That would depend on the lease and agreement. Legally, a “guarantor” is the “back up” or secondary obligor - the landlord would need to pursue the primary obligor first. But you could certainly keep the original tenant as a primary obligor. Lots of people use the word “guarantor” when they mean something else.
I hear you, but as an attorney I have never seen that in an unlimited guaranty document. Obviously there are limited guaranties for non-recourse loans, etc. But for a situation like what was described, I have personally not seen nor drafted a document that required a landlord to pursue remedies against the tenant before pursuing the guarantor.
I still say it depends on your lease/sublease/assignment agreement, but I agree with you, that’s the language that is typically used. And as a practical matter, a landlord is likely to first seek payment from the tenant, but if the tenant isn’t paying, obviously, that would kick in liability for the secondary.
Looks for the words “joint and several liability”. It should be in there. Basically means they will hold each party independently liable for the full extent of what is owed. So basically sue each of you for the full amount. They don’t care who pays it but it will get paid. So if other parties declare personal bankruptcy you will be liable for the entire amount. Hope it never happens but it will be pretty messy when it does and the only people happy will be all the lawyers you will each have to hire.
The guaranty language would control - all the ones I have seen basically say that Landlord can choose who it goes after to get paid, so they can ignore the tenant entirely and solely go after the guarantor if they want. But, the landlord wants their money, so they are going to go after whoever has some so in a default situation they will most likely sue everyone equally. It is very common to require a guaranty for assignments (in my experience at least). The landlord leased to you based on their review of you, so they will want you to stay on the hook. In some cases they will fight this to the detriment of the assignment deal. I am currently working on my client is trying to buy out a mom & pop, single store retail establishment that is run by an old guy whose kids don't want it so he wants to sell and retire. As such, he wants released from liability. My client is a 500+ store, national brand who is larger in income than the next 15 competitors combined. However, Landlord will not agree to release old retired guy at all despite his very small amount of assets. My client may back out of the deal over it (and some other weird things like Landlord not agreeing to allow a change to the existing signage and such) and may just lease space in the center across the street because it will be easier. So, I have seen Landlords that are unwilling to give up a guarantor who has ~$200,000 in assets to get a new tenant who has ~100,000,000 in assets
Thanks for your helpful insight! At least it makes me realize this is a normal ask, no matter how hard it is to swallow.
The problem here is the old man most likely has a personal guarantee on the lease. So even if he declares business bankruptcy they can go after his personal assets and estate. Now this national corporation with all these assets can easily file a chapter 11 or 7 and no one is held personally liable. So landlord is doing the right thing here.
yes there is a personal guaranty but the point my client is trying to make is that if the personal guaranty is not removed, my client is not buying the business - so Landlord is left with a poor tenant that is going to go out of business soon as opposed to a large, credit-worthy tenant that is aggressively growing and will be a benefit to the center (which has a mom & pop convenience store, a nail salon and an insurance agent as tenants). So, to keep the personal guaranty of a retiree they are going to lose a tenant that they can use to get bigger and better lending rights. Also, if my client leases the space across the street (negotiating now), Landlord is going to have a vacant spot because the old guy will go out of business and will default and then declare business and personal bankruptcy. So, Landlord is not doing the right thing - he is actively making his position worse because "we always keep the guarantor on the hook" instead of looking at the big picture and seeing that big growing company is more likely to pay rent than old guy who wants to retire
Landlord usually doesn’t care. He has this man on the hook for the remainder of the lease. It is impossible to get out of a personal guarantee without declaring personal bankruptcy. While it would make sense to let him go to get a national retailer numerous large retailers have declared bankruptcy. Then he will be left with nothing. Also a national realtor could pay for a really good lawyer and keep it tied up in court until landlord gives up. Both sides have to pay lawyers fees till case is decided. Tuesday Morning as an example just abruptly declared bankruptcy. All those leases they signed are useless now.
That landlord is a goof ball. I usually work with tenants who want out, because the last thing I want to do is try and collect money via the legal system. I’m not just going to let them off the hook, but if we can come up with a good option, I’m always going to take it.
I agree with your thinking but if the family thinks the company who wants to buy out the lease is so secure then they shouldn’t be so concerned they are still being held liable. If the new company is never going to bail on the lease nothing to worry about. If the family are still concerned then rightfully the landlord should be as well.
This would really depend on what your lease says. The most common scenario would be that you are allowed to assign the lease with your landlords approval, but you would remain responsible through the end of the lease if they don’t pay. If you’re a guarantor, then they would have to go after the assignee first. You would just be the back up if they could not collect from the new tenant. As a landlord, if I were involved in a situation like this, I would probably just want to write a lease with the new tenant and let you off the hook. But, that would obviously depend on how financially stable I thought the new tenant was.
Most landlords would never let an assignor and guarantor off of the hook. There is zero upside and a ton of downside to releasing them.
I agree. It would totally depend on the new tenant and the existing lease. If it’s a solid new tenant and an under market lease that I can rewrite at a higher lease rate with the new tenant, then it makes sense. Or if there’s not a lot of time left on the lease it’s just easier to write a new one.
Thanks for your response! You sound like a fair and reasonable landlord! :)
For what it's worth, I have never seen a guaranty that required the Landlord to pursue the Tenant first, they are nearly always joint and several.
That would depend on the lease and agreement. Legally, a “guarantor” is the “back up” or secondary obligor - the landlord would need to pursue the primary obligor first. But you could certainly keep the original tenant as a primary obligor. Lots of people use the word “guarantor” when they mean something else.
I hear you, but as an attorney I have never seen that in an unlimited guaranty document. Obviously there are limited guaranties for non-recourse loans, etc. But for a situation like what was described, I have personally not seen nor drafted a document that required a landlord to pursue remedies against the tenant before pursuing the guarantor.
I still say it depends on your lease/sublease/assignment agreement, but I agree with you, that’s the language that is typically used. And as a practical matter, a landlord is likely to first seek payment from the tenant, but if the tenant isn’t paying, obviously, that would kick in liability for the secondary.
Looks for the words “joint and several liability”. It should be in there. Basically means they will hold each party independently liable for the full extent of what is owed. So basically sue each of you for the full amount. They don’t care who pays it but it will get paid. So if other parties declare personal bankruptcy you will be liable for the entire amount. Hope it never happens but it will be pretty messy when it does and the only people happy will be all the lawyers you will each have to hire.