Businesses fall behind on rent for all kinds of reasons: a slow season, a lost customer, rising costs, or a problem that has nothing to do with how well the business is run. Whatever the cause, a commercial lease doesn’t flex when business does. This post focuses on the tenant’s side: what you’ve committed to, what’s at risk, and what you can do about it.

A multi-year lease commits you for the full term
If you signed a multi-year lease, your business is committed to paying rent for the entire term of the contract. That doesn’t change because sales dropped or because you’d like out. Whoever the tenant is, whether an LLC or another entity, it owes the rent for the whole term.

The personal guarantee question
Did you personally guarantee the lease? If so, your LLC is irrelevant to that debt, because you agreed to be personally responsible for it. Guarantees vary from landlord to landlord. Some are broad and some are limited. Ideally, your business’s lease would not have one at all.

What happens if you fall behind or need to close?

Say things go south and you think you may need to close the doors. If you’re behind on rent, you can be evicted early. The landlord can also reduce its own losses by getting a new tenant into the space. What matters then is who is responsible for whatever is left, and if you signed a personal guarantee, that may be you.

What you can do

1. Never sign a personal guarantee, or limit it before you sign.
2. If you need to close, look at your options for personal bankruptcy and, possibly, Chapter 11.
3. If you want to keep the lease, consider Chapter 11 as a tool for that too.

If you want to keep the lease
If you have reason for optimism, there are ways to save a lease. You will need access to funds to pay an attorney, but Chapter 11 can buy you time. That time can be used to reinstate the lease, work out a plan, and see whether the numbers can work. It is also a tool for keeping the leases you want and getting rid of the ones you don’t. A debtor generally has a limited window to decide whether to keep or reject a commercial lease, typically 120 days, which a court can extend once by 90.

How it looks from the landlord’s side
If the tenant files Chapter 11 and the lease is assumed and cured, the landlord is paid in full. If the lease is rejected, the landlord might not get anything. Either way, the business can continue.

Before you call anyone

• Pull out your lease and note the term, the monthly rent, and how many months are left.
• Find out whether you signed a personal guarantee and read what it covers.
• Decide whether you want to keep the space or close.
• Keep every notice from your landlord, and don’t ignore them.

The Bottom Line

If your business is behind on rent, don’t wait until the situation gets worse. The earlier you talk to an attorney, the more options you’re likely to have. Watch the full video, or contact Keck Legal to talk through yours.

DISCLAIMER: ALL INFORMATION CONTAINED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. EVERY SITUATION IS DIFFERENT, SO YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR RIGHTS AND OBLIGATIONS REGARDING YOUR PARTICULAR SITUATION.