What you need to know about signing a business lease

Whose name should I put the commercial lease in?

Because a limited company is a separate legal entity, it must manage its own liabilities, like a commercial lease agreement. If you sign a business lease under your personal name, you’re highly responsible for fulfilling the agreement if the company can’t. 

Although a lease under a limited company’s name doesn’t guarantee this outcome, it might occur if a director has provided a personal guarantee to support the agreement.

 

Should I place the lease for my business property under a personal or company name?

With commercial property leases often extending beyond 10 years, acquiring business premises involves a significant financial commitment. 

When signing such a lease, there is a strong belief in the business’s capability to thrive during this period. If your business experiences a downturn, the type of lease you’ve signed could lead to serious trouble.

 

Should the lease be in a business or personal name?

When considering signing a commercial lease, there are generally two options. You can either place the lease under your company’s name or sign it personally. 

You will often have the choice of selecting the route you prefer. Yet, in some cases, landlords may insist on placing the lease under your personal name, which clearly benefits them.

If the lease is in your name and you struggle to meet the necessary payments, the landlord can take legal action to reclaim the owed amount. They may even petition for your bankruptcy if you cannot pay.

 

How do you secure your protection when you place the lease under your personal name?

If you decide to place the lease under your personal name, consider requesting certain terms in the contract to provide protection in case your business requirements change during the lease. 

Including regular break clauses, for instance, allows you to terminate the lease at designated points without incurring charges for the entire lease period.

Alternatively, you could negotiate with your landlord to include a clause in the contract enabling you to transition from a personal lease to a company lease after a specified period. 

Before signing the agreement, take steps to safeguard your interests as much as possible. Consider having a solicitor review the agreement to fully understand your commitments. This is crucial for anyone signing a lease, especially those undertaking it personally.

 

What if your lease is in your company’s name?

Alternatively, your limited company may have the option to acquire the lease in its own name. Placing the lease under the limited company offers the protection of limited liability. 

This implies that if the company cannot meet the payments, you won’t be personally liable for rent arrears or breaking the agreement terms. While this seems advantageous, you must understand how your personal liability may be impacted if asked to provide a personal guarantee.

 

How do personal guarantees work here? 

Even if your landlord agrees to place the property lease under your company’s name, it’s common to be requested to sign a personal guarantee (PG), especially if your business is newly established or has a history of poor credit.

A PG essentially removes the protection offered by limited liability. If your company fails to adhere to the agreement terms, the individual who signed the PG becomes responsible for paying the lease. The debt becomes personal rather than company borrowing once you’ve signed a PG. If you can’t maintain the payments after the responsibility shifts to you, you’ll need to explore personal debt options like an IVA or bankruptcy.

When it comes to lease agreements, PGs usually transfer the responsibility for the entire remaining lease term to the individual. However, there might be ways to reduce your personal liability. Before signing, negotiate with your landlord to limit your personal liability. 

They might agree to restrict your personal liability to, for example, only 12 months’ rent instead of the entire lease term. Alternatively, your landlord may accept a cash deposit instead of insisting on a PG.

 

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Take Professional Assistance From Vanguard Insolvency

If you’re struggling with your commercial lease payments and worry about the implications for your company, seek advice from the experts at Vanguard Insolvency. In times of business and financial challenges, time is crucial. Contacting a professional at the earliest signs of distress significantly improves the chance of a successful resolution.

Whether your business is showing initial signs of trouble or has been facing financial difficulties for a while, we’re here to assist. Contact our team today to schedule a free, no-obligation consultation.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.