When your kids go off to college or you need to rent space for a business, you are likely to be asked if you will guaranty your child's lease or the business lease. Is this something that you should do?
THE most important thing to remember is that the guaranty makes you personally liable for all rents, property damages, and other lease responsibilities for the entire lease. So once the lease and guaranty are signed you are personally liable for the entire lease and anything that may happen. For a small business that may be rent and a proportionate share of taxes, utilities, etc. for ten years. Even for a small business that may amount to well over a million dollars. For college students it may mean that you could be liable for the entire damage done by 5 roommates to a home, condo or apartment. In either event it is certain to be way more than you can imagine as you are filled with the happiness of starting a new business or the joy of having your child begin his or her college education.
BEFORE SIGNING THE GUARANTY you should carefully consider the total amount that you could be liable for and decide whether or not it poses a significant risk to your financial well being. If it is a concern, then you should look at the alternatives.
The alternatives include trying to negotiate the removal of the lease requirement or in the alternative placing a cap on your liability. For the college student the cap may be just the damage or rent owed by your child. There usually is space a available that will not require a guaranty. That space may not be as nice as what you are looking at. If the space is not top of the line, the landlords are probably not as aggressive in requiring a personal guaranty. If there is no personal guaranty, the landlord may be more aggressive in enforcing the lease, in order to minimize his/her potential loss.
In any event before signing that personal guaranty be sure to take a hard look at the worst case scenario and make your decision accordingly, so that if the worst does happen you will have done the mental preparation so that you can respond in the best way possible.
Fort Collins, CO December 1, 2013