Personal Guarantees
Medical Office Today | By: Sibley Fleming
When looking for space to lease, whether you’re relocating or opening a new practice, your prospective landlord will probably ask you to sign a personal guarantee.
“If you’re dealing in a market that’s economically stressed, then the landlord is going to be much more apt to not require a personal guarantee.” says medical office landlord Kenneth Weston, principal of Kenneth Weston & Associates, Miami. “If the market is extremely strong, the landlord is in a better position to ask for a personal guarantee.”
The quality and cost of the space to the landlord also plays into his ability to give a tenant a break on a personal guarantee. If the space is second generation, or space that has been previously occupied by another tenant and only minor improvements are needed, then a landlord will be more amenable to reach an arrangement such as a structured buyout, which allows the tenant to get out of a lease by paying a lump sum or rent for a period of time.
“In a case like that, I doubt very seriously that we would do that without a personal guarantee.” Weston says. “Typically, it would be from every doctor that is a part of the surgical center.” Bear in mind that personal guarantees are not a means for the landlord to cheat the tenant. They are a form of insurance policy that protects the landlord from losing the large sums of money that he expends to build out and lease his space.
Not all landlords will require a personal guarantee. They may be willing to accept a letter of credit from your bank or accept a higher up-front cash security deposit.