Basic small business questions / getting a commercial lease

[szw]

Hi,

Sorry if these questions are too basic or dumb...

Say you want to purchase a business with an existing retail location and you want to run the business under a corporation shared equally by two partners. Now you buy the business but you still have to have your credit approved with the landlord to get a new lease. When the landlord does the credit check, whose information do they use of the two partners? Does it have to be both or can you just give one? And when you do get approved for the lease...is the lease in one of the partners names, or is it in the corporation name with a personal guarantee from one of the partners (who had the credit check done)...is this what happens?



Can one of the partners be completely "invisible" to the rest of the public with regards to their involvement in the corporation or does it have to be all public knowledge?

[jimmyleve]

Say you want to purchase a business with an existing retail location and you want to run the business under a corporation shared equally by two partners. I think you mean shareholders Now you buy the business Are you buying the shares of the existing business or setting up a NEW corporation and buying the assets? but you still have to have your credit approved with the landlord to get a new lease. When the landlord does the credit check, whose information do they use of the two partners? Does it have to be both or can you just give one? And when you do get approved for the lease...is the lease in one of the partners names, or is it in the corporation name with a personal guarantee from one of the partners (who had the credit check done)...is this what happens?

Can one of the partners be completely "invisible" to the rest of the public with regards to their involvement in the corporation or does it have to be all public knowledge?

The lease will most likely be in the name of your corporation, BUT your landlord may require personal guarantees (happens if the people running the business are new to the business)

You cannot be an "invisible" owner of a corporation as you would have the articles of incorporation will list all shareholders/directors.

[szw]

Thanks. Of course it makes sense a landlord would ask for a personal guarantee for a new corporation. So with regards to the lease, this kind of kills the "limited liability" part of having a corporation?

Or is it common to have a buyout clause where you aren't on the hook for the entire amount if your business goes under?

[flafson]

Landlord isn't stupid, most wouldn't just put it under the corporation name unless the company has a good credit rating or you put a large enough deposit money to offset being new.
As said before, it's also very common for the landlord to ask for personal guarantees.

I have a lease with Cadilac Fairview which was hell to get them to approve and they wanted double the deposit money because i was a new business at the time. I think i gave them 12 grand. Then again, i'm not liable to the lease if the company goes down.

Since then we moved and we sublease the place to a lawyer and they asked him to give personal guarantee for the place.

Not sure the exact rules but i would assume that you would take over the existing lease of the previous owner and they will just have to approve you for it.

[szw]

Landlord isn't stupid, most wouldn't just put it under the corporation name unless the company has a good credit rating or you put a large enough deposit money to offset being new.
As said before, it's also very common for the landlord to ask for personal guarantees.

I have a lease with Cadilac Fairview which was hell to get them to approve and they wanted double the deposit money because i was a new business at the time. I think i gave them 12 grand. Then again, i'm not liable to the lease if the company goes down.

Since then we moved and we sublease the place to a lawyer and they asked him to give personal guarantee for the place.

Not sure the exact rules but i would assume that you would take over the existing lease of the previous owner and they will just have to approve you for it.

Thanks. I know it depends on all situations but glad to hear other peoples experiences (not just the word of the commercial real estate agent).

Curious...the 12k deposit you put down...how many months rent was that equal to?

[flafson]

Rent is just over 3k so almost 4 months.
Didn't have first and last month rent though, only that deposit and monthly since.
I'm subleasing the place now at a loss of about $500 a month. Better than paying the whole thing though.

[grant]

Every lease is different, you can refuse to offer a personal guarantee, and the landlord can refuse to rent to you. It's all a negotiation.

Yes a personal guarantee defeats the liability protection of a corporation which is exactly why landlords ask for it.

Landlord will always ask for credit check + guarantees from every single entity they can. If you have a silent partner there's no harm in telling the landlord he's not willing to offer a guarantee and he'll have to accept a guarantee from only 1 of the partners.