05/27/2020

Exit Rights For Small Business Leases And Guaranties

Key factor: Proceed with care

Many small businesses now have no revenue. The notion of paying rent seems absurd. That has created a national stand-off between tenants and property owners, who count on rental income to pay their own expenses and prevent foreclosure.

Many tenants and many business owners who guarantied their business leases would like nothing more than to terminate their leases, terminate their guaranties, and walk away. In a minority of cases, they may have the right to do that, an exit right. It depends on what they negotiated with the property owner when they signed their lease and any separate guaranty.

Some leases give the tenant an outright option to terminate. More often, the lease was signed by a corporation or limited liability company, without a termination right, and the owner of the business signed a separate guaranty to backstop the tenant’s obligations under the lease. In many cases, though, it’s just a “good guy guaranty.” That means the guarantor has the right to terminate its liability if the tenant stops paying rent but behaves like a “good guy:" it moves out and doesn’t make the property owner endure the eviction process.

Please select this link to read the complete article from Forbes.