Broke Commercial Lease

Hi,

We closed our business in Maryland on Jan 31 2011 w/ 7 mos(out of original 18) left on lease.  Our lease was signed in our LLCs name.  In the lease there is a clause that personally guarantees my husband to a 5k "penalty fee" for vacating early.  I am assuming that the landlord can go after this in court and that we can be made to pay it?  The issue is we have no money to pay it at this time. We are in huge debt and have no credit cards to even bail us out on the 5k.  He has said we can pay him $500 a month- but we cannot pay that either.  We may be able to agree to $250 and pay more if we can.  If we agree to a payment term does he have to take us to court still? 

The other issue is that of property taxes. LL says we owe him almost 3k on taxes.  If I do the math and account for the time we occupied the space during the tax period we only owe for 7 months (1600). Can he collect this money- he did not require payment of taxes or other cam charges monthly- we paid the other stuff as the bills came in- the tax last yr we paid in a lump sum. AND can he make us pay property taxes on the space for the time left on the lease even though we are out? 

Is the only thing he can collect on is the personal guarantee?  Or can he collect on this tax too?

I appreciate any help! Thanks!

ksween22:

We closed our business in Maryland on Jan 31 2011 w/ 7 mos(out of original 18) left on lease.  Our lease was signed in our LLCs name.  In the lease there is a clause that personally guarantees my husband to a 5k "penalty fee" for vacating early.  I am assuming that the landlord can go after this in court and that we can be made to pay it?

Of course.

ksween22:

The issue is we have no money to pay it at this time. We are in huge debt and have no credit cards to even bail us out on the 5k.  He has said we can pay him $500 a month- but we cannot pay that either.  We may be able to agree to $250 and pay more if we can.  If we agree to a payment term does he have to take us to court still? 

He doesn't HAVE to take you to court.

If you agree on a payment plan, get it in writing, and stick to it. That should eliminate the possibility of a lawsuit as long as you make the payments on time, every time.

ksween22:

The other issue is that of property taxes. LL says we owe him almost 3k on taxes.  If I do the math and account for the time we occupied the space during the tax period we only owe for 7 months (1600). Can he collect this money- he did not require payment of taxes or other cam charges monthly- we paid the other stuff as the bills came in- the tax last yr we paid in a lump sum. AND can he make us pay property taxes on the space for the time left on the lease even though we are out? 

Sorry, but that depends on the terms and conditions of the lease, which I can't read from here unless you quote it word for word.

Seems like that $5000 is a liquidated damages clause (google it). If he agrees to a payment plan in writing for that amount that's all you should have to pay.

ksween22:

Is the only thing he can collect on is the personal guarantee?  Or can he collect on this tax too?

Let's put it this way. He can sue and collect for anything that the lease entitles him to.

Again, without being able to read the lease there is no way to answer the question.

It'd be a good idea to take the lease an attorney and review your options and vulnerabilities.

If you have other financial difficulties besided the lease issue, you might want to consider bankruptcy.

Thanks so much-

The penalty clause says this.

"Penalty. If tenenat does not complete the initial lease term(18 months)for any reason, the person (not company, llc, or any other entity) signing this agreement will personally guarantee payment of penalty fee of Five Thousand dollars($5000)." 

So we know we have to pay that....

With the rest I assume we are might not have to pay since it is signed with our LLC which has no money.  The taxes just say that we have to pay half of the taxes to the proper taxing authority- our county office- or if the LL decides he can pay the taxing authority and recoup the money from us.  He did not do tihs and we did not have the money to pay the taxes.  I thought it strange that he would want his tenants to pay the taxes for him bc if they did not he could have a lien placed on the building and be subject to tax sale. He is the owner it seems that he would want to protect his building.   It almost seemed like he did not have the money to pay the tax himself. The lawyer who reviewed the lease before we signed thought tihs was not enough protection for the LL but he was representing us not LL.  This same lawyer felt the lease had a lot of holes in it and did not protect the LL - he felt even the Personal Guarantee could get thrown out in court. But we just want to be done with it and not go to  court.  (no Money)!

ksween22:

The penalty clause says this.

"Penalty. If tenenat does not complete the initial lease term(18 months)for any reason, the person (not company, llc, or any other entity) signing this agreement will personally guarantee payment of penalty fee of Five Thousand dollars($5000)." 

So we know we have to pay that....

Yes, I tend to agree.

ksween22:

With the rest I assume we are might not have to pay since it is signed with our LLC which has no money. 

Don't confuse not having to pay with not getting sued. The LL can certainly sue you and the LLC to enforce the terms of the lease.

He would, at least, likely be successful with the $5000.

ksween22:

The taxes just say that we have to pay half of the taxes to the proper taxing authority- our county office- or if the LL decides he can pay the taxing authority and recoup the money from us.  He did not do tihs and we did not have the money to pay the taxes.  I thought it strange that he would want his tenants to pay the taxes for him bc if they did not he could have a lien placed on the building and be subject to tax sale. He is the owner it seems that he would want to protect his building.   It almost seemed like he did not have the money to pay the tax himself.

The motivation doesn't matter.

What does the lease say specifically about the taxes?

ksween22:

The lawyer who reviewed the lease before we signed thought tihs was not enough protection for the LL but he was representing us not LL.  This same lawyer felt the lease had a lot of holes in it and did not protect the LL - he felt even the Personal Guarantee could get thrown out in court.

I often get to disagree with lawyers. But I think that the personal guarantee for the $5000 is specific enough so that it would be upheld in court.

ksween22:

But we just want to be done with it and not go to  court.  (no Money)!

Having no money doesn't prevent the lawsuit. But if you can convince the LL that a bird in the hand is worth two in the bush you might get him to waive (in writing) any other lease provisions and obligations if you agree to pay the $5000 in installments.

You have a little leverage if it's that or nothng.

But he also has leverage because he can sue, get a judgment, garnish wages and bank accounts, and put a lien on your home or any real estate you would own in the future, along with trashing your credit with the judgment.

Notwithstanding all the words in the lease, EXACTLY how did you sign the lease?

If you signed it something like  Mary Smith, President Smith Corp.

                                                    Henry Smith, Vice President

And nothing more--you might want to carefully review with your attorney if just the corporation is bound to the lease and not the individuals

Our intention was to have the LLC be bound to the lease but we did personally guarantee the 5k.

Now I am worried bc of the taxes. 

It is signed :

Tenant: XYZ Co , LLC

 By: John Doe(our name)

Print Name: John Doe   Date__xx/xx/09____

I think I am going to see if we can find a lump sum of 5k(means borrowing from family)- then offer it to him and ask that he sign a paper saying this would release us from any other liability.

There is a clause that says: " addenda" shall mean (check those that apply)"

"X Personal Guarantee(s) for Penalty Fee- included in Part Two of Lease"

See we have another company that we co=own with someone else and I do not want to get that co involved in any legal issue.  It has been in business for over 25 yrs. We created the LLC for the now closed business hoping to be protected personally- but we do understand about the guarentee- just did not want to go to court bc of the tax issue.

Can he also go after us for taxes for future months?  Months we are not occupying the building?  Seems like if we are not there we should not have to pay for taxes. The tax clause in the contract is so weird bc it asks us to pay the county our share.  I think that as a building owner he would be leary about anyone paying but him.  He seems to think that the county can do something to us for nonpayment- he is on the deed and mortgage not us. I did see it was tagged for tax sale- taxes are past due.

He did this to us last yr- we were in the building 5 days and he left a note to pay the taxes on my desk.  I have some experience in real esatate so i looked up the bill and saw he was trying to charge us for taxes that covered 7 months in the building when we had not yet moved in plus late fees.  I confronted him and he blamed his admin asst. so I was a bit leary after that with this LL. He is not a typical commercial LL so I think that is also a problem bc this has been new to him. The tenant upstairs left too and she had no out clause in her lease and she also had not clause to pay any taxes. So she is done free and clear. Lucky her!

So just hope he goes for a large lump sum of money and lets it be.  We also have mutual friends and I know he may not want it all to get to ugly.  But I am not sure.  If I can say anything I can say I have learned alot!

Thanks for any further help!

I am NOT a lawyer but I am NOT so sure the way that specific lease was signed binds you individually to the lease or merely the LLC  as the signature block sure reads to me like the intent was to bind the LLC and there is nothing that strikes me as binding the individual and it clearly creates an ambiguity in my mind anyway that the signature  was solely on behalf of tenant,LLC.

Perhaps one of the real expert posters here  might comment--or go get a real review in your state.

I was a LL for a long time--I suspect LL was sloppy on this one.   If the LL drafted the lease  and LL created an ambiguity the general contract law view is the guy who created the ambiguity  eats the problem .  Had you signed it twice , once for LLC and one individually, LL would hold solid card.  I'm not so sure LL holds a solid card as to your personal liability  and at say $300/hr for counsel it may not be a safe economic bet to litigate.  Might suggest you play poker?

BTW does lease have an annorty fee recovery clause for winner in a dispute?

BTW,  does lease have an attorney   fee recovery clause for winner in a dispute?

Yes= loser pays all fees.

Not necessarily --and for starters even if your personal guarantee as to rent is upheld its does NOT necessarily mean you signed on to guarantee anything else, like legal fees.

And I'm still  uncertain about that signature  block.

If the LLC signed on as to the whole package and the intent was to sign you on as personal guarantors of the rent (which is not unusual) then the signature area should have had you sign twice in my lay view -once for corporation and once as individual.

After reading the signature block I tend to agree that there would have had to be a separate signature block for the individual who is making the personal guarantee.

But it's a gray area.

And while a court might construe an ambiguity against the one who drafted the contract, a court would also look at the intent of the parties. In this case it appears that the intent of the parties was to hold the individual personally responsible for the $5000 and there is no question that the tenant went into the deal with the full knowledge and acceptance of that provision.

Trouble is, at $300 per hour, litigating the issues is guaranteed to cost more than the amounts in dispute with the only accurate prediction being that two lawyers come out the winners.

I agree that the intent is there.  Of course in hindsight we are wondering why we agreed to 5K and not a lesser amt! 

I have sent LL an email offering the 5k if he agrees to releasing us from any other liability he thinks we may have. If he agrees -this keeps lawyers out of it and us paying more fees.  I do feel that there is quite a bit of gray area in the lease doc.  But we did know we had to pay if we left early so we do feel we need to pay this however painful. 

If LL does not agree then I am not sure what the next step would be - I may be back here asking. Perhaps it will be to do nothing and wait to see if he files suit. We have access to an attorney - maybe discounted (hopefully) but really do not want to go down this road. 

I thank everyone on this forum for the help.  I will post when i know what LL decides.

Every experience is a learning experience!

ksween22:

I will post when i know what LL decides.

When you come back, make sure you revive this thread (where all the background is contained) and don't start any others.

Adding to it will bring it to the top of the active list.

True--but that knife can cut both ways.

I think there is a pretty reasonable arguement that   LL failed to include the individuals when it came time to the actual signing.--but lets agree its 50/50 odds.

If I clearly signed as corporation but did NOT sign as individual  I'm not sure  I agree that I intended to sign as an individual --and the four corners of the lease  may not get us to that point.  Who signed in what sequence--occassionaly Ive been asked to sign both for my corporation and myself --and I've just signed for my corporation  and let the other side decide if to do the deal or not.  

Its not a slam dunk arguement for other side to now say I should have meant to sign or any such dribble when the actual docuement in front of him shows I did not sign personally and he had plenty of opportunity back then to ask me for 2nd signature.  Odds are a LL I'm a professional and probably had a lawyer craft my lease---a bit late now to try to read more into it.

Without reading the lease , lets assume worst case the individuals only signed on to guarantee the $5000 rent  and not performance or legal fees or anything esle.

Now lets assume the LLC is an empty pot.

Win or lose, how does LL collect  from an empty pot?

How does LL collect legal costs from  individuals even if he wins?

Were I OP I'd take pains to have ALL my communications under corporate identity and to distance personal ID from the equation entirely.

I think both side may have serious holes --and it may boil down to bluffing skills and a settlement.  Me, were I OP/LLC I'd do as little as possible and force LL to act.

Were I the LLC I'd spend some of LLCs money to get a paid review of my lease and options and odds by competent contracts counsel in MD. .

** The tenant who breeches most likley has a duty to try to abate --the nonbreeching side may or may not, depends on state law--but practical answer is LL has a dutytoseek to abate-EG everyone find replacement tenant.

You know we did try to find another renter for him.  It did not work out.  He has signs up now bc we are out. He is asking way too much rent for the place- both tenants (us and upstairs) moved out same week.  Just too much money and extra costs associated with the space.

We had someone look over the lease recently - he owns many buildings in MD- he felt that there were major holes in the lease. and that we were paying way too much for the space- but that was our fault.  Before we moved he suggested we try to work out some deal to stay in space and LL did not want to to that so we had to give notice to vacate bc we had no more money. He kept sec dep and applied to Jan rent.

I will contact the person who looked over the lease recently- he has the lawyer who may give a better rate. LLC has no money in acct. We may have to use some $ from other business to pay but so be it.

I actually think the way the lease reads the only thing personally guarenteed is the 5k all is we assumed we were signing under LLC- we did that on purpose for protection in such an event as this.

I will have to contact freind with attorney available. See what he thinks:)

Thanks@