Legal Question in Business Law in California

Re: Assignment of lease guarantee

Does your lease for the premises have months remaining on it? If so, you should only be liable up to the time your lease expires. Thereafter, the LL will have to deal with the buyer of your business directly if he defaults on the new lease AFTER your lease is set to expire. It's not fair to ask you to guarantee the buyer's lease after the period by which your lease would expire had you not sold the business. My recommendation would be to get the landlord to release you entirely from your lease upon the buyer executing a new lease. Good luck.

Re: Assignment of lease guarantee

There is no law dictating what a landlord can and cannot demand in a commercial lease renegotiation. Without knowing how many months or years remain on the lease before your first opportunity to "opt out" or let it lapse, it's hard to say what's fair. The new owners' credit would also be a factor in any discussion of overall fairness. Also, although I understand this is a new lease and not an assigment or sublease, the provisions of the existing lease with respect to your right to assign or sublet could be a factor in what's fair.

On balance, I'd say if the buyers have average or better credit strength, asking you to guarantee their obligations beyond the earliest expiration date of the current lease borders on overreaching.

Other factors such as a favorable lease rate for the new lease will also bear on the fairness, but of course the buyers are benefitted by a low rate while you are burdened with an onerous guarantee.

For reasons like this, I suggest that buyers and sellers of businesses handle lease assignments or renewals and other landlord-related issues before the selling price is set in stone. With small retail businesses, the location is important to the goodwill, etc. and the landlord is almost like a third party at the bargaining table.