tenant personal liability
Landlords of commercial leases usually expect sole traders and owners of SMEs (small and medium enterprises) to take on personal responsibility for rent and other lease obligations – either directly through the lease or in the form of a personal guarantee. In addition, where the tenants comprise two or more individuals or a partnership, the individuals/partners concerned will, under such a lease, be responsible for all of the obligations of the tenants – so, if for example, the tenants consist of two individuals, the landlord can choose to claim the entire rent from either of them. In law, this is referred to as the tenants’ joint and several liability.
Understandably, most owners of businesses will want to avoid personal liability or giving guarantees wherever possible. In the context of a commercial lease there are some ways in which they can avoid or minimise this:
- by being tough in negotiations with the prospective landlords – professionals involved in commercial lease negotiations will also know of various strategies which can help these negotiations
- by offering alternatives to personal liability or guarantees – probably, the most common alternative is for the tenant to offer of a rent deposit typically of 3 to 6 months, depending on the amount of the rent
- where landlords insist on tenants being personally responsible, by asking for a restriction on the length of that personal responsibility or guarantees (for example, restricted to the first three years of the business’ stay as tenants)
There are further strategies to restrict owners’ personal liability that experienced commercial property solicitors will be able to advise on.