Negotiate Right to Release Guarantor from Lease Later

Using a guarantor to secure your lease obligations—if you aren’t as financially strong or experienced as the owner for the space you want to lease would like—can be the difference between doing business in a desirable location or having to set up shop elsewhere. One of the major issues that arises in a guarantor situation is an insistence by your guarantor to ensure that it’s released from liability later.

You can make sure that your guarantor isn’t on the hook indefinitely by negotiating several points when determining the conditions and reductions of a guaranty up front between you and the owner. For example, addressing an assignment of the lease is crucial. You should try to negotiate—and your guarantor might insist—that if the lease is being assigned or the subsidiary is being sold to someone else, the guaranty will be returned. A guarantor won’t want to guarantee the obligations of someone with whom it isn’t affiliated and over whom it has no control. You can also try to negotiate for the return of the guaranty once a certain amount of time has passed, as long as you’re not in default of your lease.

For more ways to negotiate an “exit strategy” that gives you the right to replace or phase out the guarantor and model lease language you can adapt to achieve this, see “Negotiate Protections to Minimize Guarantor’s Liability for Lease,” available to subscribers here