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January | February | 2015 CCIM.com
more f exible than a maximum dollar cap
approach. When using a formula-based
guaranty it is important to def ne all key
terms such as rent, attorney's fees, mainte-
nance costs, and others used in the formula.
If the components of the formula are not
specif cally def ned, then enforcement of the
guaranty will be impaired.
Rolling Guaranty
A third option is a rolling guaranty. If the
tenant performs and fulf lls its monetary
obligations under the lease for a certain
period of time, then the landlord's risk of
loss declines, and the guarantor's liability
may be reduced. T us, if a tenant does not
default for the f rst 36 consecutive months of
a seven-year lease, then the guaranty could
expire at that point in time. Or the cap of
the guaranty may decrease in stages over
time. Finally, instead of the simple lapse of
time, the cap on liability under a guaranty
might decline upon reaching certain f nan-
cial benchmarks, such as an increase in net
worth, gross sales, or revenues. As long as
the parties agree on the benchmark, any
f nancial target can work.
T ese three examples of limited guaran-
ties are just some of the ways to address a
landlord's need for security while attending
to the desire of a lease guarantor to limit
liability to a reasonable level. T e keys to a
successful lease negotiation when a separate
lease guaranty is necessary or desired are for
all parties to remain f exible and to under-
stand the legitimate business needs of the
other party. By doing so, the parties should
be able to arrive at a mutually acceptable lim-
ited lease guaranty that facilitates the suc-
cessful negotiation of the lease itself — and
helps secure the landlord.
Tamarah R. Feigl is a partner and Megan Rose
Altman is an associate at Norton Rose Fulbright
in Houston. Contact them at tamarah.feigl@
nortonrosefulbright.com and megan.rose.
altman@nortonrosefulbright.com.
Though not an exhaustive list, these limited
guaranties should be a good starting point
for negotiations with tenants and any
potential guarantors, providing landlords with
acceptable security for tenant obligations
under the lease.
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