Advice on Personal Guarantee's - Lease
Discussion
Hi. Im posting under an anon login as Id rather not run any unness risks etc.
Now, I know how knowlagable many on here are so Id appreciate some advice.
Here is the background
My late father started a business in the nineties. I was in my late teens. He started the venture from nothing and as such borrowing was a problem but so was getting a lease on a building.
We signed a long lease and gave personal guarantees. (despite having no money). Now, we are hitting tough times and the weight of worry attached to these guarantee's is starting to affect me.
We are still a solid business, well, more than just one solid business. However, as trade falls, and has fallen I am very aware of the guarantee. Basically we both gave the guarantee but he died years ago and so I am told by a solicitor it all falls on me.
What I am asking is does anyone know if there is a technical or otherwise way to 'get shot' of this guarantee? Also, is it worth anything that the owner of the building sold it and we now have a different landlord?
I have had professional advice, and as such am not daft and already have plans drawn up to move everything I own away from me in preparation for bankruptcy should it ever be required. And, as such have sod all the landlord could come for..... The advice I have had is quite simply 'no. you're fecked, make sensible plans to protect yourself in the event it should happen'. And I have no problem with this if this is the only option available.
I probably should point out that we are not talking small sums, the combined rent on both the properties is knocking on for £300k with the primary building I am worried about falling between £80-£120k per annum (again, slightly vague to ensure anonymity)
What I would like to know, is if there might be another way in the event of circumstances where I truly think one particular business may not survive.
Il stress again, we are currently debt free, and holding our own. However, I have already decided that I will not borrow to keep this business afloat.
To make matters worse, theres another building that I have given personal guarantee's on too!!!!
We know we could combine the two places and have one very successful one but that still wouldn't stop the affected Landlord calling on the PG's, or rather just the one as father passed away !
I do not want this post to sound defeatist, It shouldn't. The business, and I, and indeed its employees are more focused than ever on providing top quality service, and on generating custom and securing the custom of every potential customer we speak to. We are fighting hard and are still profitable (just).
Its these damn guarantee's that are keeping me awake at night. Now, in true PH fashion there will be the predictable response of 'you signed, you got what you wanted live and deal with it'. And thats fair enough, I agree, but I was very young when I signed it and didn't really understand it. However, I do accept it hence the legal advice Iv already had
Now, I know how knowlagable many on here are so Id appreciate some advice.
Here is the background
My late father started a business in the nineties. I was in my late teens. He started the venture from nothing and as such borrowing was a problem but so was getting a lease on a building.
We signed a long lease and gave personal guarantees. (despite having no money). Now, we are hitting tough times and the weight of worry attached to these guarantee's is starting to affect me.
We are still a solid business, well, more than just one solid business. However, as trade falls, and has fallen I am very aware of the guarantee. Basically we both gave the guarantee but he died years ago and so I am told by a solicitor it all falls on me.
What I am asking is does anyone know if there is a technical or otherwise way to 'get shot' of this guarantee? Also, is it worth anything that the owner of the building sold it and we now have a different landlord?
I have had professional advice, and as such am not daft and already have plans drawn up to move everything I own away from me in preparation for bankruptcy should it ever be required. And, as such have sod all the landlord could come for..... The advice I have had is quite simply 'no. you're fecked, make sensible plans to protect yourself in the event it should happen'. And I have no problem with this if this is the only option available.
I probably should point out that we are not talking small sums, the combined rent on both the properties is knocking on for £300k with the primary building I am worried about falling between £80-£120k per annum (again, slightly vague to ensure anonymity)
What I would like to know, is if there might be another way in the event of circumstances where I truly think one particular business may not survive.
Il stress again, we are currently debt free, and holding our own. However, I have already decided that I will not borrow to keep this business afloat.
To make matters worse, theres another building that I have given personal guarantee's on too!!!!
We know we could combine the two places and have one very successful one but that still wouldn't stop the affected Landlord calling on the PG's, or rather just the one as father passed away !
I do not want this post to sound defeatist, It shouldn't. The business, and I, and indeed its employees are more focused than ever on providing top quality service, and on generating custom and securing the custom of every potential customer we speak to. We are fighting hard and are still profitable (just).
Its these damn guarantee's that are keeping me awake at night. Now, in true PH fashion there will be the predictable response of 'you signed, you got what you wanted live and deal with it'. And thats fair enough, I agree, but I was very young when I signed it and didn't really understand it. However, I do accept it hence the legal advice Iv already had
Ahh, Tonker, Good Afternoon, nice reading your posts on the BNP thread.
There is between 5 & 10 years left on the lease with no break in the period remaining.
I have a plan to enact to move my assets and savings (shares & cash etc) all across to girlfriend & member of family. I have deliberately ensured my primary home is 98% mortgaged (took this decision back in 2007 when I could see we would enter this economic downturn)
Are you saying that the simple fact that I have even started this thread means it would be a good idea to start doing this right now? Even though I still am minded to say we will survive?
You mentioned about 'clawed back' Now if I give things away as a gift (like shares and cash) at a time when the companies are still shown as in profit how can they be clawed back?
Is another option to give the Landlord notice? Is that possible? Say 1 years notice? I have visions of being stuffed and liable for 5-10 years (its somewhere inbetween) rent at 80>120k per year unless I can re-let the place. And even then am aware that if this tennant defaulted in 3 years Im still stuffed!
You advice is appreciated
ETA when talking about bankruptcy, Im talking personal bankruptcy. Even though one business would fold it's 'LTD' and owes nothing. No bank borrowing or outstanding debts
ETA
I would not fold the company with any debts. Even though someone I know has made an effing fortune this way!!!! It'd just be that damn lease
There is between 5 & 10 years left on the lease with no break in the period remaining.
I have a plan to enact to move my assets and savings (shares & cash etc) all across to girlfriend & member of family. I have deliberately ensured my primary home is 98% mortgaged (took this decision back in 2007 when I could see we would enter this economic downturn)
Are you saying that the simple fact that I have even started this thread means it would be a good idea to start doing this right now? Even though I still am minded to say we will survive?
You mentioned about 'clawed back' Now if I give things away as a gift (like shares and cash) at a time when the companies are still shown as in profit how can they be clawed back?
Is another option to give the Landlord notice? Is that possible? Say 1 years notice? I have visions of being stuffed and liable for 5-10 years (its somewhere inbetween) rent at 80>120k per year unless I can re-let the place. And even then am aware that if this tennant defaulted in 3 years Im still stuffed!
You advice is appreciated
ETA when talking about bankruptcy, Im talking personal bankruptcy. Even though one business would fold it's 'LTD' and owes nothing. No bank borrowing or outstanding debts
ETA
I would not fold the company with any debts. Even though someone I know has made an effing fortune this way!!!! It'd just be that damn lease
Edited by notanewbie on Saturday 24th October 13:05
yeah, I agree. Wholeheartedly.
However, Iv a stronger chance of them not spending the money Iv earnt and letting me have it back than the Landlord saying 'oh, ok, no worries, keeps ya money, Il be fine' !!!!!!!!!!
Right, so its a two year rule? Correct? And if so, thank you. The so called professional, and f
king expensive advice I had failed to mention that.
Iv worked hard to build what I have, and will work hard to ensure we remain and stay successful.
But theres no way Im going to lose it all now.
ETA, Tonker : I am only talking about my personal assets, NO company assets. Just protecting my personal wealth.
One other business has assets but that too is a LTD and Id have already resigned as a Director and sold my shares in it (which judging by what you've said needs to be pronto)
However, Iv a stronger chance of them not spending the money Iv earnt and letting me have it back than the Landlord saying 'oh, ok, no worries, keeps ya money, Il be fine' !!!!!!!!!!
Right, so its a two year rule? Correct? And if so, thank you. The so called professional, and f
king expensive advice I had failed to mention that.Iv worked hard to build what I have, and will work hard to ensure we remain and stay successful.
But theres no way Im going to lose it all now.
ETA, Tonker : I am only talking about my personal assets, NO company assets. Just protecting my personal wealth.
One other business has assets but that too is a LTD and Id have already resigned as a Director and sold my shares in it (which judging by what you've said needs to be pronto)
Edited by notanewbie on Saturday 24th October 13:11
Like Tonker, I am not an insolvency lawyer - but there is actually no time limit under s.423 of the Insolvency Act 1986 if you become bankrupt and the Court believes that your intent in giving assets away or passing them on at less than full value was to put your assets beyond the reach of your creditors.
Good advice is pretty essential to make sure that you understand your position and options.
Good advice is pretty essential to make sure that you understand your position and options.
notanewbie said:
have plans drawn up to move everything I own away from me in preparation for bankruptcy should it ever be required.
With the greatest of respect, it seems like you’ve already given up. If you have signed the gtee, then you have to live up to your end of the bargain. That's life, and I'm sure when your dad was alive it seemed like a good idea, but as you have taken more responsibility within the business then you also have to take bigger decisions and be tougher. The good times never last forever.I had a PG when I started my business but after I got big enough I had the sense to renegotiate. Easy to say now, but if I was in your position then that’s what I would try to do right now. You say that the business is solid:-
notanewbie said:
Hi. We are still a solid business, well, more than just one solid business.
If that is true then getting rid of a PG is easy, unless you are kidding yourself of course.I have struggled over the last 18 months, but I have never even considered bankruptcy, so I personally feel you are being disingenuous in your post. Racking up mortgages etc so you’re not liable is not the sign of someone whose business is ‘solid’
There’s nothing wrong with that, but be honest and speak to a prepack advisor to cover yourself. As much as I love PH, you need professional advice
Good luck!
I'm not a lawyer, but it sounds like you need the guarantees looking over by a lawyer, enough may have changed or happened that if not invalidates certainly weakens the enforceability. Speak to the landlord, if the rents are crippling the company and you don't have assets to cover the short fall then what use is the guarantee? Coming after you for all you are worth is pointless if it is £2.50 a packet of fags and a bus ticket. Do you know anyone who could take over the lease that you could introduce to the landlord?
notanewbie said:
Also, is it worth anything that the owner of the building sold it and we now have a different landlord?
Been following this thread with interest.
Again, not a lawyer, but could this be a legal getout....The fact you and your Dad signed the documentaion with the ORIGINAL owner, or have you also signed paperwork with the NEW one?
Best case senario, do you honestly think your business could keep going, and make a decent net profit until the fixed terms expire,( bearing in mind we are in the worst recession in recent years, and things could get better).. in which case you are worrying about a problem that does not exist.
Good luck.....
As Tonker said a landlord is unlikely to do anything unless there's chance of something in return.
You mentioned you have between 5 and 10 years left on the lease, therefore I wondered if you would be interested in regearing the lease? If you were to extend the lease for a little longer you may be able to negotiate removal of the guarantee and perhaps a short rent free or reduced rent. It's not ideal but may give you a hand with your current predicament.
You mentioned you have between 5 and 10 years left on the lease, therefore I wondered if you would be interested in regearing the lease? If you were to extend the lease for a little longer you may be able to negotiate removal of the guarantee and perhaps a short rent free or reduced rent. It's not ideal but may give you a hand with your current predicament.
CAVEAT: I am not a lawyer. I negotiate my own leases. I do not offer (actionable) advice!
To the OP: a great deal of what other options might be available to you depends upon the nature of your business, the type of premises you operate from, and so on.
First things first: are your businesses currently paying more in rent than the current market rent? When were the last rent reviews, and when are they next due? In short, if your business stopped operating from one or both sets of premises then could they realistically be let out?
This is important. Your landlords' guarantees do NOT allow them simply to claim from you the balance of the lease; they must take reasonable steps to minimise their losses, which include letting out the premises as quickly as possible. Assuming that you are not going to be compulsorarily wound-up, you have a number of options:
Obviously, your lease will have to allow this. I can't understand why anybody would ever sign a lease that doesn't allow this, but then I don't understand how any lawyer would allow a client to sign a non-time-limited personal guarantee or other things - but such is life. Nonetheless, it would be pretty unreasonable - especially in the current climate - for a landlord to refuse a lease variation to allow sub-letting in part by license. Talking to the landlord is obviously critical here!
A final thought (I'm sorry these are slightly unstructured, but it is late and I have so little information from your end to go on here): are these FRI leases? Is there likely to be a large repairing liability on your shoulders down the line, even if you do pay the rent on time?
Oh, a (final) final thought (!) - are the premises anywhere that might be ripe for residential development? If there's a chance of that (and projects are re-starting now in places) then there's a chance you could actually be doing your landlord a favour by surrendering early
Anyhow, if you can provide a bit more information (you're welcome to PM me) then I'll offer some further food for thought. Overall, if you can avoid staring into the abyss (hard, I know - believe me, I know) then you'd be surprised what options are out there, especially with the size of buildings that £300k+ of rent secures
To the OP: a great deal of what other options might be available to you depends upon the nature of your business, the type of premises you operate from, and so on.
First things first: are your businesses currently paying more in rent than the current market rent? When were the last rent reviews, and when are they next due? In short, if your business stopped operating from one or both sets of premises then could they realistically be let out?
This is important. Your landlords' guarantees do NOT allow them simply to claim from you the balance of the lease; they must take reasonable steps to minimise their losses, which include letting out the premises as quickly as possible. Assuming that you are not going to be compulsorarily wound-up, you have a number of options:
- let out the premises as a whole yourself / through your company (a sub-let or even just a licence);
- assign the lease to another party (even if the current rent is above market rent, paying a "reverse premium" to get the lease away from you may be preferable to the guarantee route);
- let out the premises as smaller units, perhaps on flexible terms - often there can be a premium attached to smaller units over larger ones.
Obviously, your lease will have to allow this. I can't understand why anybody would ever sign a lease that doesn't allow this, but then I don't understand how any lawyer would allow a client to sign a non-time-limited personal guarantee or other things - but such is life. Nonetheless, it would be pretty unreasonable - especially in the current climate - for a landlord to refuse a lease variation to allow sub-letting in part by license. Talking to the landlord is obviously critical here!
A final thought (I'm sorry these are slightly unstructured, but it is late and I have so little information from your end to go on here): are these FRI leases? Is there likely to be a large repairing liability on your shoulders down the line, even if you do pay the rent on time?
Oh, a (final) final thought (!) - are the premises anywhere that might be ripe for residential development? If there's a chance of that (and projects are re-starting now in places) then there's a chance you could actually be doing your landlord a favour by surrendering early
Anyhow, if you can provide a bit more information (you're welcome to PM me) then I'll offer some further food for thought. Overall, if you can avoid staring into the abyss (hard, I know - believe me, I know) then you'd be surprised what options are out there, especially with the size of buildings that £300k+ of rent secures
Hello, thanks for the replies this far.
Ok,. Il say it again. The companies are completely debt free. Personally I am not, like I said, a decision I made quite deliberately. 1) because I knew that Id never get another chance to borrow so much, and 2) because I figured if the businesses went tits up then Id be more likely to keep my house.
Whilst not rich, lets just say I am not short of a few quid (outside of that mortgage)
The businesses are operating ok, of course they are affected but whilst struggling are still just about in profit, although the third business (the only one not tied to the premises) is doing very very well indeed right now (after suffering badly right at the beginning of the recession).
A few have said I have already given up: OMG, you couldn't be further from the truth. The catch is I have already decided NOT to borrow to keep businesses trading. A bit like the 'just one more pound' mentality from those addicted to playing fruit machines.... Thats a position Il never wish to take.
To my mind if the business no longer generates cash in its bank account then its time to call it a day. ETA : Iv had no problem using cash reserves during the lean spell but will not borrow
I started this thread to explore options, specifically around these guarantee's. Now given what I know now there is no way Id sign such a lease again but these leases were signed a long time ago when I was very young (both physically and mentally) and now am much much wiser.
I have been doing some digging. In the belief that you should always - say this in a Sean Connery voice - know your adversary and it looks to me that the company that holds our lease is not too healthy, so Il be doing a little more digging to see what the future might hold.
The rents were reviewed in 2006 (joy of joy) and were obviously increased..........
The time at which the building transferred ownership we didn't get a say over sod all. At that point in time we didn't have the cash to purchase it ourselves (which now we do).
Residential is no possibility where we are.
On the contrary to what a few might thing I am actually exploring all possibilities well in advance. The last thing Im going to do is stick my head in the sand. We can continue as we are just fine, but as I cannot predict the future thought Id find out a little more info on the one and only thing I am worried about.
Ok,. Il say it again. The companies are completely debt free. Personally I am not, like I said, a decision I made quite deliberately. 1) because I knew that Id never get another chance to borrow so much, and 2) because I figured if the businesses went tits up then Id be more likely to keep my house.
Whilst not rich, lets just say I am not short of a few quid (outside of that mortgage)
The businesses are operating ok, of course they are affected but whilst struggling are still just about in profit, although the third business (the only one not tied to the premises) is doing very very well indeed right now (after suffering badly right at the beginning of the recession).
A few have said I have already given up: OMG, you couldn't be further from the truth. The catch is I have already decided NOT to borrow to keep businesses trading. A bit like the 'just one more pound' mentality from those addicted to playing fruit machines.... Thats a position Il never wish to take.
To my mind if the business no longer generates cash in its bank account then its time to call it a day. ETA : Iv had no problem using cash reserves during the lean spell but will not borrow
I started this thread to explore options, specifically around these guarantee's. Now given what I know now there is no way Id sign such a lease again but these leases were signed a long time ago when I was very young (both physically and mentally) and now am much much wiser.
I have been doing some digging. In the belief that you should always - say this in a Sean Connery voice - know your adversary and it looks to me that the company that holds our lease is not too healthy, so Il be doing a little more digging to see what the future might hold.
The rents were reviewed in 2006 (joy of joy) and were obviously increased..........
The time at which the building transferred ownership we didn't get a say over sod all. At that point in time we didn't have the cash to purchase it ourselves (which now we do).
Residential is no possibility where we are.
On the contrary to what a few might thing I am actually exploring all possibilities well in advance. The last thing Im going to do is stick my head in the sand. We can continue as we are just fine, but as I cannot predict the future thought Id find out a little more info on the one and only thing I am worried about.
Edited by notanewbie on Monday 26th October 08:44
right ! Thats what we are now getting on to.
The lease afaik is still in the name of the old owner........ It would seem as though we are v.close to needing decent legal advice (again) however, I have now had dealings with 3 commercial property solicitors and all three have been crap
1) The first one got us this lease !
2) The second one drafted the second lease !
3) The third one failed to spot various things (see this thread)
Recommendations anyone? Im starting to think that local is not best!
We'll be reading any and all documentation that we have and be getting thoroughly egdamucated (pun) prior to spending more dosh on the legal beagle whoever it will be.
Ironically enough we're having a cracking day today, much new custom!
The lease afaik is still in the name of the old owner........ It would seem as though we are v.close to needing decent legal advice (again) however, I have now had dealings with 3 commercial property solicitors and all three have been crap
1) The first one got us this lease !
2) The second one drafted the second lease !
3) The third one failed to spot various things (see this thread)
Recommendations anyone? Im starting to think that local is not best!
We'll be reading any and all documentation that we have and be getting thoroughly egdamucated (pun) prior to spending more dosh on the legal beagle whoever it will be.
Ironically enough we're having a cracking day today, much new custom!
Its a long time since I did Landlord and Tenant but if I recall correctly Privity of Contract means that whilst a tenant can assign a lease the Landlord was always ale to come back to him in future years if the assignee (or several assignees later) went bust. There were some alterations to that. But I guess the same applies to a Guarantee. The Guarantee is not a seperate contract between the Landlord and the Tenant but is usually contained in the lease. Therefore it presumably says something along the lines of Jo Bloogs guarantees to pay the rent to the Landlord not Jo Bloogs guarantees to pay the rent to Ripoff Landlord Ltd? Or if it does it could say guarantees to poay the rent to Tipoff Landlords Ltd or their successors in title.
Howeverthe OP has now said they could afford to buy the freehold. He may want to look at that option. The company can buy the Freehold, and the lease could then be extinguished. That gets him out of his guarantee and means that the company no longer has to pay rent, giving then the options to redevelop, let etc the property as and when required. It also gets him out of dilapidations at the end of the lease as well.
Oh and when dealing with commercial leases it is important that everyone should note that you should get good professional assistance. That would usually include a surveyor to agree the rent, rent review, break clause etc and a lawyer to agree the lease itself, and the lawyer should be an L and T specialist. They will not necessarially be in your local solicitors office!
Howeverthe OP has now said they could afford to buy the freehold. He may want to look at that option. The company can buy the Freehold, and the lease could then be extinguished. That gets him out of his guarantee and means that the company no longer has to pay rent, giving then the options to redevelop, let etc the property as and when required. It also gets him out of dilapidations at the end of the lease as well.
Oh and when dealing with commercial leases it is important that everyone should note that you should get good professional assistance. That would usually include a surveyor to agree the rent, rent review, break clause etc and a lawyer to agree the lease itself, and the lawyer should be an L and T specialist. They will not necessarially be in your local solicitors office!
Options:
Buy the buildings, rip up the leases and sign new leases for 25 years without the PG and sell the investments for profit. This assumes your accounts are very healthy, although, even if they're not you could probably break even. There are investors out there looking to buy at the moment.
Buy the buildings and rip up the leases and occupy them yourself with no lease in place.
Assign your leases to a company of better covenant strength than yourself, although you'll still be on the hook if they go bump.
Offer a longer lease to the Landlord subject to the PG's being removed, although, they're not stupid and will understand exactly why you're doing it, so less likely to permit it. However, if they're in trouble they may look to extend the leases and immediately sell the investments.
Find some legal way of wiggling out out of it.
Note with regard to some comments made by others - Privity of Contract only applies to leases to signed before 1996, after that Authorised Guarantee Agreements came into place. You say the Landlord may be in trouble - if they do go bump it will not get you off the hook, you will just get a new landlord, which may be far more aggressive, such as your current Landlord's Bank.
If you need a chat from a property perspective rather tha a legal one feel free to PM me. If you give me some details of the property and your company accounts I can tell you what a 25 yr lease to yourself might be worth.
Buy the buildings, rip up the leases and sign new leases for 25 years without the PG and sell the investments for profit. This assumes your accounts are very healthy, although, even if they're not you could probably break even. There are investors out there looking to buy at the moment.
Buy the buildings and rip up the leases and occupy them yourself with no lease in place.
Assign your leases to a company of better covenant strength than yourself, although you'll still be on the hook if they go bump.
Offer a longer lease to the Landlord subject to the PG's being removed, although, they're not stupid and will understand exactly why you're doing it, so less likely to permit it. However, if they're in trouble they may look to extend the leases and immediately sell the investments.
Find some legal way of wiggling out out of it.
Note with regard to some comments made by others - Privity of Contract only applies to leases to signed before 1996, after that Authorised Guarantee Agreements came into place. You say the Landlord may be in trouble - if they do go bump it will not get you off the hook, you will just get a new landlord, which may be far more aggressive, such as your current Landlord's Bank.
If you need a chat from a property perspective rather tha a legal one feel free to PM me. If you give me some details of the property and your company accounts I can tell you what a 25 yr lease to yourself might be worth.
anonymous said:
[redacted]
The PG is only worth as much as the guarantor. From what the OP says, that isn't actually very much at all anonymous said:
[redacted]
I think you misunderstand; I was not suggesting that subletting in part or whole (at least one of which, I would hope, is allowed by the lease) was a way out of the guarantee; rather, it is a way of avoiding having to rely upon the guarantee! I've lost track of the number of companies who could have down-sized their operation and sub-let their premises in order to stave off disaster, but simply did not. Evidence suggests tenants don't think of doing it in that way.The PG - assuming it has any legal legs any longer - is always a worry, but it needn't be a huge one. Unfortunately, a 2006 rent review might be a little too rich for the current climate (depending upon location, and of course depending upon whether there are any tenants' improvements which are excluded from the review and hence counterbalance the review figure), but there is a lot of money flying around in certain areas to create and pay for small business units. In other areas there isn't, of course
Gassing Station | Business | Top of Page | What's New | My Stuff