Include Key Protections for Lease Guaranty

Q: The owner of the space I’m considering leasing wants me to provide a guaranty. I’ve found a guarantor, but I want to avoid giving the owner unfettered power and make sure the guarantor is protected. Otherwise, what incentive does it have to stand in for me? What are some common limits on guaranties that I can negotiate to protect myself and my guarantor?

A: Ask that your guarantor’s liability be capped at a specific dollar amount. The worst possible scenario for a guarantor is being left wide open to pay for everything that goes wrong with a lease deal, with no end in sight for costs. So asking for a cap on what the guarantor is liable for is wise.

A savvy owner will ask for a safeguard though, in the form of excluding certain costs from the cap. For instance, it won’t want to cap its collection costs or attorney’s fees. Otherwise, it’ll lose money for enforcing the lease or guaranty. Other common exclusions are for environmental contamination at the space—which can mount up enormous costs. For model language you can use in your guaranty, and more guaranty limits to negotiate, see “Drafting Limits on Guaranty in Lease,” available to subscribers here