I have a person willing to purchase my business, but the landlord is standing in our way. The landlord is asking for a personal guarantee for the five-year term of the new lease to be signed by the buyer. There was no personal guarantee needed when I first entered into the lease agreement with this landlord. Now he’s changing the lease for any buyers and scaring away prospective buyers of my business because no one wants to sign a five-year personal guarantee on the lease. What can I do?
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What should I do if my Landlord asks for a personal guarantee from the buyer?
Always remember the “Golden Rule.” That is – the person with the gold makes the rules. Unfortunately, when it comes to landlords, this couldn’t be more true.
Landlords can be a major deal killer when selling your business, and you must often acquiesce to their demands if you want to sell your business. Bite your tongue and be as cooperative as possible. If your landlord is scaring buyers off, then you have the following options:
- Act as a liaison between the buyer and the landlord to minimize communication between the two parties.
- Meet with the landlord to see if they have any underlying concerns that need to be addressed.
- Move to a new location.
- Find a buyer who is both operationally and financially qualified – this will help them appear to be a strong tenant. Keep in mind that the landlord may still request a personal guarantee.
- Offer to personally guarantee the lease yourself.
- Set the expectations with any buyer upfront that they must personally guarantee the lease. Note that it’s also reasonable and fairly common for landlords to request a personal guarantee from smaller tenants with less than $5 million to $10 million in annual revenue. There’s little you can do to get around this, so it’s best to prepare buyers for this requirement.
- Hire an experienced commercial real estate professional to work as an intermediary on your behalf.
The landlord has a right to both ensure that their new tenant is qualified and request a personal guarantee, so you can’t force the landlord to lessen their requirements. Unfortunately, this is one of many potential stumbling blocks when selling a business.