Would this be a deal breaker FOR YOU?

[Pompal 09.]

I spoke with the landlord of the place we want to lease for our business this afternoon. He faxed me a copy of the lease he uses, with a note saying that due to the recent fiasco he's had to deal with regarding the business that is currently there (nutshell" the lady died, left the biz to her boyfriend, he works full time and couldn't do that and tend to the business too, and he fell behind on the rent. The landlord had to lock the doors on him and is currently selling everything in the place and kicking him out.), he will be going to his lawyer on Monday to change the lease a little, to give him more instant recourse than having to take someone to court of they don't pay their rent. (I'm not doing a good job of explaining this- please bear with me!)

He also said that he would not lease to an LLC. We could put the LLC down on the paperwork, but he requires a personal guarantee (as though dh were still a sole proprietor). It has to be signed by a PERSON, not an LLC.

Would either of these be an absolute "deal breaker" for you, and why or why not?

*** Please note: I do NOT want this to become a "Scare Timedess with all sorts of worst case scenarios" session. Just a straight answer on what YOU would do will suffice. Thanks for understanding! ***

 

[reighning]

I suppose I would want to see what exactly the changes will be, how it will be written in the lease.

 

[Cee]

If I were an LLC I would not sign a lease as an individual. The whole point of incorporating is to place business liability on the business.

But, it would be worth talking to him and finding out why he wants that.

 

[Burning like Antartic ice]

If I were an LLC I would not sign a lease as an individual. The whole point of incorporating is to place business liability on the business.

I agree, I though that was the whole purpose so that they could not go after the individual...

Not so sure the way the landlord is getting rid of the previous tenant is exactly Kosher either...

 

[Sinister]

Would this be a deal breaker FOR YOU?

He also said that he would not lease to an LLC. We could put the LLC down on the paperwork, but he requires a personal guarantee (as though dh were still a sole proprietor). It has to be signed by a PERSON, not an LLC.

Would either of these be an absolute "deal breaker" for you, and why or why not?

Not a problem at all. We had to sign a personal guarantee on our spa lease, but the lease is in the LLC name in order to build the LLCs credit rating.

Unless your LLC has been in business many years and has established credit sufficient to cover your obligation, no one will "lend" -- a lease is an obligation to pay, just like a loan -- to a legal entity like an LLC

 

[~JYP <3 Gail Kim]

Would this be a deal breaker FOR YOU?

...he will be going to his lawyer on Monday to change the lease a little, to give him more instant recourse than having to take someone to court of they don't pay their rent. (I'm not doing a good job of explaining this- please bear with me!)

I would want to see the changes first as well. In the current situation, I get the feeling the 'bad' tenant fell WAY behind on the rent - maybe a couple months or more. I don't think it's because he paid the rent a week late. (But if it is is, I wouldn't sign. )

Are you at all worried going into this that you won't be able to pay your rent every month? If not, this new part should be no big deal.

He also said that he would not lease to an LLC. We could put the LLC down on the paperwork, but he requires a personal guarantee (as though dh were still a sole proprietor). It has to be signed by a PERSON, not an LLC.

Would either of these be an absolute "deal breaker" for you, and why or why not?

Sounds like one for your lawyer. Could signing as 'the person' and not the LLC mess up stuff about your taxes, and insurance and things like that? Also, will the landlord only rent the space to a sole proprietor? I find that hard to believe. Maybe he is just really confused. Have you spoken about what an LLC is?

But, ultimately for me, it would come down to how much I loved the space and how badly I wanted to be there. Perhaps this is the 'sign' to keep looking and not enter into a relationship with this landlord.

Just my thoughts.

P.S. Hope this doesn't fall into your:

"Scare Timedess with all sorts of worst case scenarios" session.

 

[Dizzy Dame]

I agree, I though that was the whole purpose so that they could not go after the individual...

True, but being an LLC does not obligate anyone to do business with your legal entity.

If 75% of new businesses fail in the first two years, why would any landlord sign a lease with an entity that is more often than not going to go belly up and put the space back on the market?

That just means more months of vacancy, which they have to make up for through higher rent on the next tenant.

The good news is, most leases dissolve the obligation once a suitable replacement tenant is signed to take over the space and starts paying rent. If you are looking at a desireable location, this means the worst case scenario is you are on the hook for 3 months rent.

With risk, comes reward. If you want the landlord to bear the risk, guess how is going to get the reward?

 

[Lihua Emily Bai]

I never found that being an LLC kept me from having to personally guarantee everything for my business.

 

[Aiden]

I would not sign a lease that resulted in giving up my rights to due process. Laws are typically written in favor of land lords anyway. Yes, it is a process to evict a tenant that does not pay their rent.

It is common practice for an LLC to submit a personal guarantee to secure a contract when there is limited to no credit history for the LLC.

A lawyer that specializes in Tennant Laws and Regulations may be a valuable investment in this case.

In Peace and Light

 

[Soul Boogers]

If I were an LLC I would not sign a lease as an individual. The whole point of incorporating is to place business liability on the business.

I agree, I though that was the whole purpose so that they could not go after the individual...

Not so sure the way the landlord is getting rid of the previous tenant is exactly Kosher either...

My "thing" is that if I am going to sign anything, as an individual or as an entity (and it would be hubby doing the signing, as he is the only one who has any credit- I have never established credit at all), I should only do so if I am willing and able to follow through with the commitment. To me, the "getting an LLC" is to limit our personal responsibility in case some client gets weird, or something really really wacky happens- not to release us from our true, legal responsibilities.

And yes, the previous tenant was WAY behind. He was not able to keep up with both his deceased girlfriend's business and work his full-time (primary) job, so the business suffered. The girlfriend died sometime last year, from what I understand. This has been in the works for a LONG time.

 

[iAm]

Would this be a deal breaker FOR YOU?

...he will be going to his lawyer on Monday to change the lease a little, to give him more instant recourse than having to take someone to court of they don't pay their rent. (I'm not doing a good job of explaining this- please bear with me!)

I would want to see the changes first as well. In the current situation, I get the feeling the 'bad' tenant fell WAY behind on the rent - maybe a couple months or more. I don't think it's because he paid the rent a week late. (But if it is is, I wouldn't sign. )

You are correct, Brian- this deal with the previous tenant has been in the works for a LONG time. The lease as I have seen it (unless he changes this part, which I doubt), gives a TEN day grace period without a late fee- the house we rented for two years gave us only THREE days' grace period.


Are you at all worried going into this that you won't be able to pay your rent every month? If not, this new part should be no big deal.

Well, no, it is always a "risk" whether this will be a good move for us or not- but staying where he (hubby) is working at now is also a "risk", just because we never know exactly what is going to happen. But yes, we do think that we WILL be able to cover the rent. Otherwise, we would not be considering it.

He also said that he would not lease to an LLC. We could put the LLC down on the paperwork, but he requires a personal guarantee (as though dh were still a sole proprietor). It has to be signed by a PERSON, not an LLC.

Would either of these be an absolute "deal breaker" for you, and why or why not?

Sounds like one for your lawyer. Could signing as 'the person' and not the LLC mess up stuff about your taxes, and insurance and things like that? Also, will the landlord only rent the space to a sole proprietor? I find that hard to believe. Maybe he is just really confused. Have you spoken about what an LLC is?

He knows what an LLC is... and it seems that he has run into more than his fair share of folks who had an LLC who ran out on their lease and left him high and dry. It did throw me for a loop when he told me his policy, but I can see his point. Too many folks are using the LLC to hide from legal responsibility, I guess. I don't believe in signing anything unless I am fully prepared to follow through with it, so it shouldn't be a problem.

We don't have a business lawyer as yet, but we do have a good CPA and a Realtor who is "up" on commercial stuff who can look at it for us.

He said we can have the LLC on the papers, he just wants a personal guarantee that the rent will be paid.

But, ultimately for me, it would come down to how much I loved the space and how badly I wanted to be there. Perhaps this is the 'sign' to keep looking and not enter into a relationship with this landlord.

This place has a LOT of positives to it, which to us probably will end up outweighing this one "glitch", especially as we don't plan on not paying our rent, no matter where we are. It is literally right behind our house, so we could walk to work. It is in a great location, high visibility, the busiest corner in this little area, right down the street from the library and the post office, the area is growing rapidly, and it looks like an excellent opportunity to get in "on the ground floor". We have had a lot of encouragement from the locals about coming into the area, as well. We've only lived here for 6 months, but we love it here. We can see ourselves staying here for a long, long time.

There is also no other "massage establishment" in the area, even though there are a few independent MT's here. Even the MT who works inside the Curves that is also in the same building is encouraging of us moving the business here. And as we've talked with the other tenants of the building, as well as the landlord himself, I get the feeling that he is really a decent person to do business with- he is a very "hands-off" landlord (which is DEFINITELY a plus to us- the landlord we had with our last rented house was HORRIBLE!), as long as we pay our rent and take care of the building, he's quiet as a mouse and not hard to deal with at all.

We do also have some long-term goals/vision for the place, IF we can get in there.

Just my thoughts.

P.S. Hope this doesn't fall into your:

"Scare Timedess with all sorts of worst case scenarios" session.

No, Brian, you're fine. I just didn't want anyone coming in and telling me horror stories. I don't have a bad feeling about this at all- in fact, we both feel very good about this. I just wanted to ask some opinions of others more experienced than we are, to make sure that we're going into this with our eyes wide open and not wearing some stupid rose-colored glasses. Thanks for your input (and to everyone!)

 

[Wendi888]

I agree, I though that was the whole purpose so that they could not go after the individual...

True, but being an LLC does not obligate anyone to do business with your legal entity.

If 75% of new businesses fail in the first two years, why would any landlord sign a lease with an entity that is more often than not going to go belly up and put the space back on the market?

That just means more months of vacancy, which they have to make up for through higher rent on the next tenant.

The good news is, most leases dissolve the obligation once a suitable replacement tenant is signed to take over the space and starts paying rent. If you are looking at a desireable location, this means the worst case scenario is you are on the hook for 3 months rent.

With risk, comes reward. If you want the landlord to bear the risk, guess how is going to get the reward?

Exactly. This guy will even accept a lease term of as little as 18 months, and he is willing to give us a discount if we take care of the grass. He's had a hard time finding someone to do that, and there is VERY LITTLE grass there to mow. As it is right behind our house, I can easily see me or hubby or, more likely, one of our kids dragging our little reel mower over there a couple of times a month. It would take maybe 15 minutes to do- literally. I think the guy is sensible, really. And I totally 'get' the risk/reward part. After all, why is HE in business? LOL!

 

[kdoulos]

I would not sign a lease that resulted in giving up my rights to due process. Laws are typically written in favor of land lords anyway. Yes, it is a process to evict a tenant that does not pay their rent.

It is common practice for an LLC to submit a personal guarantee to secure a contract when there is limited to no credit history for the LLC.

A lawyer that specializes in Tennant Laws and Regulations may be a valuable investment in this case.

In Peace and Light

I would not *give up* my rights. If he adds THAT to the lease, well, then the deal is off completely. But I think that he will end up with some sort of middle ground there somewhere. You're right- we will probably find a lawyer to look at it before we sign anything. Just better to be safe than sorry!

 

[Joe l]

I think if I wanted the space, even if my company was an LLC, I would not have a problem signing a lease as "myself". I mean, one way or other I would do my best to to pay the fellow even if I went "bunk" and the business died.

I would however, suggest getting a business realtor type person to do the contract with you.

I forget what they are called, it's been so long since I've negotiated.... but there are people who can negotiate youe lease for you. It is worth it when you are first going into business if you feel like things are the slightest bit complicated.

 

[HTacianas_II]

My lease is signed by "myself," and it seems to be pretty standard that the lease is guaranteed by an individual, unless you are dealing with very large corporations with established credit, etc. I wouldn't sign away any rights to due process, but the owner wanting a personal guarantee of the rent wouldn't bother me. my $.02 FWIW.

 

[Valentina R]

Thanks, y'all. I have a Realtor who does commercial stuff who said he'll look at it (and I may see what he'd charge me to help negotiate it, but I'm not for sure that that'll even be necessary). My school director also has offered to give me the name of her lawyer so we can have him/her to look at it. I *know* but then we'd be able to know for sure what we were getting into.

I'm still thinking that this is gonna happen. :grin:

 

[Pompal 09.]

The "negotiator" usually is not paid by you, but the lessor. At least hereabouts....


Oh, and our company is an LLC if it matters.

 

[Des]

I heard back from the landlord on Monday- his trip to the lawyer's for the lingo change was thwarted by her going into labor. LOL! We've agreed that "after the first of the year" will suffice on both ends for getting back together on this. We have a trip to make between Christmas and New Year's, so it'll give us time to get that "business" (family business, not even really related to the holiday season other than "because hubby's not got much work so it's easier to go now", LOL!). So we'll see what comes after the first.

 

[Lizard]

We are an S Corp, and we still had to provide personal guarantees for the lease. This is standard practice in our area, as too many landlords have been shafted by businesses running out on obligations and then filing bankruptcy.

It is common for arbitration to be specified as a preferred method of working out differences. This does not amount to giving up any rights; it simply spells out a means of settling any major disputes before turning to the courts. Having these details spelled out in advance is an intelligent approach to proactively providing for reasonable resolution of possible disagreements.

 

[Luna]

It would depend on the practical ramifications of the personal guarantee. If the landlord's just looking for me to give my word that I intend to pay on time, that sort of thing, I have no problem with that. The LLC shouldn't be a way to escape personal responsibility. If he's attempting to circumvent your legal protection in a serious way, then I wouldn't sign. So yeah, read it carefully, potentially have an attorney review it, and go from there.