Question from Bee, How Can a Personal Guarantee Clause Transition to a Corporate Guarantee?
Answer from AI:
When drafting a commercial lease agreement, it’s important to clearly outline the terms under which a personal guarantee will expire and a corporate guarantee will take effect. Below is a general example of how such a clause might be structured. Please note that this is a simplified example for informational purposes only, and actual legal documents should be drafted or reviewed by a legal professional to ensure they comply with all applicable laws and regulations.
Sample Clause for Transition from Personal to Corporate Guarantee
Guarantee of Lease:
- Personal Guarantee: For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned Guarantor(s) hereby unconditionally and irrevocably guarantee(s) the full and timely payment and performance of the Tenant’s obligations under this Lease for a period of twelve (12) months from the commencement date of the Lease (“Personal Guarantee Period”). This guarantee shall include all rent, additional rent, and other sums payable under the Lease.
- Expiration of Personal Guarantee: The Guarantor(s)’s obligations under this Personal Guarantee shall automatically expire on the first day following the successful completion of twelve (12) consecutive months of the Tenant’s timely and full payments of all obligations under the Lease, without any default or event of default by Tenant.
- Corporate Guarantee: Upon the expiration of the Personal Guarantee Period as provided in Section 2 above, and provided that Tenant has not been in default under the terms of the Lease during the Personal Guarantee Period, the Tenant’s obligations under this Lease shall be guaranteed by [Corporate Entity Name] (“Corporate Guarantor”). The Corporate Guarantor hereby agrees to unconditionally and irrevocably guarantee the full and timely payment and performance of the Tenant’s obligations under this Lease from the expiration of the Personal Guarantee Period onward.
Conditions for Corporate Guarantee: The effectiveness of the Corporate Guarantee is subject to the following conditions:
- The Tenant has made all payments due under the Lease in a timely manner during the Personal Guarantee Period without any default;
- The Tenant provides written notice to the Landlord of the transition from the Personal Guarantee to the Corporate Guarantee;
- The Corporate Guarantor executes a guarantee agreement in a form acceptable to the Landlord, which agreement shall be effective as of the expiration of the Personal Guarantee Period.
- Continuation of Guarantees: Notwithstanding the above, if Tenant defaults at any time during the Personal Guarantee Period, the Personal Guarantee shall remain in full force and effect until such time as the Landlord, in its sole discretion, determines that the Tenant has resumed regular and timely payments and has cured any such default to the satisfaction of the Landlord. The Landlord may, at its discretion, require that the Personal Guarantee remain in effect for an extended period or reinstate the Personal Guarantee if Tenant defaults after the Corporate Guarantee has become effective.
Legal Considerations and Advice
When drafting or agreeing to a clause like the one above, it’s important to consider the following:
- Ensure that the terms are clear and enforceable under the laws of the jurisdiction where the property is located.
- Both the Guarantor(s) and the Corporate Guarantor should fully understand their obligations under the guarantee.
- The Landlord should ensure that the Corporate Guarantor is a legally recognized entity with the capacity to enter into such an agreement.
- It may be necessary to include additional provisions to address specific concerns or circumstances related to the lease or the parties involved.
It is highly recommended that both Landlords and Tenants consult with a legal professional to draft or review any guarantee clauses in a commercial lease agreement to ensure that they are legally sound and reflect the intentions of the parties. Legal professionals can provide personalized advice and ensure that the agreement complies with relevant commercial laws and regulations.
For more information on commercial leases and guarantees, you may refer to resources such as the U.S. Small Business Administration or state-specific legal guides.