When negotiating a new commercial lease, avoid signing a personal guarantee whenever possible.

Form a business entity first.

Always establish an LLC or S Corporation and have the lease signed under the company name. If the landlord is not funding your build-out or providing financial assistance, there should be no need for a personal guarantee. While landlords often insist on one for a new salon, you may be able to have this removed at the start of the lease if no financial contribution is being made by the landlord. Remember, a personal guarantee gives the landlord the right to sue you personally if the salon closes, creating unnecessary risk and stress by tying your personal assets to your business.

When a guarantee is reasonable.

If the landlord provides funds for the build-out, they are entitled to a guarantee, similar to a bank. However, this guarantee should be limited to the amount of the leasehold improvement allowance or loan and amortized over the term of the lease.

For example: If you rent 1,500 sq. ft. for five years at $20 per sq. ft. annually, and the landlord gives you $50,000 toward the build-out in exchange for a personal guarantee, what happens if the salon closes after two years? In this case, you’d still owe the rent for the remaining term unless you can sublet the space. For the $50,000, the repayment should be prorated. Since you completed two years of the lease, the landlord has received two years of rent, so the repayment should be reduced accordingly — in this example, to three-fifths of the original amount, or $30,000.

Here’s an example of language that could be included in the lease:

“Should the tenant at any time throughout the initial term of this lease default or cease to operate, the landlord shall be entitled to receive from the tenant a sum equal to $30,000 multiplied by a fraction, the numerator of which equals the number of months remaining in the lease and the denominator of which is the total number of months in the lease term.”

If the landlord won’t agree to this structure, request that the personal guarantee be removed entirely at the end of the initial term (typically five years).

Clarify landlord vs. tenant responsibilities.

Ensure any funds provided by the landlord are clearly divided between Landlord Work (improvements the landlord is paying for, but you are coordinating) and the Tenant Improvement Allowance (upgrades like premium lighting, flooring, or wall finishes). Even if the space is unfinished, standard base-building items like lighting, paint, or ceiling finishes have value. Be sure the landlord credits you for these basics as part of the build-out negotiation. A contractor can help you differentiate between landlord and tenant responsibilities, which is further detailed in our article on Tenant Improvement Allowances.

Need help negotiating your lease? I offer free lease consultation calls to help you explore your options and secure the most favorable terms. 📩 Contact me at leasing@summitsalon.com