By Stuart Pack, as adapted from a presentation given to the Young Lawyers Division of the Arizona State Bar Association
Many “Mom and Pop” or “Small” businesses should seek the advice of legal counsel before entering a tenant/landlord agreement. Here’s some of my best tips for helping navigate this process for your clients. If you are a small business owner, heed my advice and save yourself headaches in the long run.
Guaranty – If a tenant has been successful in getting the landlord to let him sign the lease in an entity such as a limited liability company, most landlords will still want the tenant to be personally liable for the lease obligations by signing a guaranty.
Sometimes a landlord can be persuaded to eliminate the guaranty, especially if the deal is AS IS because then the landlord is not really putting any money into the deal. If the landlord insists on a guaranty, a tenant can try to limit the scope of the guaranty – such as (1) guaranty won’t exceed a certain dollar amount or 1 years rent, etc. or (2) limit the term of the guaranty to the first 2 years of the lease, etc.
One possible way to get the landlord to eliminate or limit the scope of the guaranty is to increase the security deposit – many landlords would rather have money in their pocket than having the right to sue a tenant who might end up filing for bankruptcy anyway.
Use – Most landlord form leases will try to limit the tenant to a particular use, such as nail salon, cigar store, barbershop. A tenant should always try to get the use clause expanded – this is needed because if this tenant cannot make it as a nail salon, there is a good chance a different tenant won’t be able to make it as a nail salon either, so the tenant must be able to transfer the lease to someone who can use the store for something else. A tenant should therefore ask for a broader use clause, such as “any lawful retail use” or “any other use not to be unreasonably withheld”.
Insurance – Most of the time, the landlord’s form of lease will provide for either too high insurance limits or unnecessary coverage, but the tenant should always consult with his or her insurance broker on the coverage required by the lease.