Animal Health Solutions

9 Q4 2020 | Animal Health Solutions A circumstance where your personal assets are at risk are, obviously, not ideal. This article will explore the differences between corporate and personal tenancies, how personal tenancies differ from personal guaranties, and general step-downs when negotiating personal liability with your landlord. Considering your vehicle: Personal tenancies vs. corporate tenancies Understandably, a very common choice vehicle for your tenancy is often your name and yourself personally – why not? It seems like the obvious choice. But, it's important to understand that the vehicle within which you carry your lease can vary – other options are available beyond holding a tenancy under your own name and designation. Specifically, you can, should your landlord agree, enter into a lease as a corporation to limit the personal consequences described above. The corporate vehicle provides you with greater privacy, permits you to separate your personal assets from business assets and, more importantly, from your obligations under your lease agreement. Ultimately, holding your tenancy within a corporation insulates you and your personal net worth, should the business fail and an event of default becomes inevitable. Personal guaranties vs. personal tenancies. Often, the terms "personal tenancy" and "personal guaranty" are used interchangeably. However, consider the following examples: Example: A lease held personally: Amanda Black, D.V.M. Example: A lease held within a corporation: Amanda Black Veterinary Clinic Inc. Example: A personal guarantee: Amanda Black Veterinary Clinic Inc., with a personal guarantee provided by Amanda Black It's important to understand that these concepts may be considered differently – a personal tenancy can be considered a lease vehicle while a personal guarantee can be considered lease insurance for the benefit of the landlord. Corporate tenancies and personal guaranties Ensuring that a tenant pays rent on time is obviously a matter a landlord takes seriously – but it's an obligation that is, very often, unsecured. Therefore, while there are indeed options to how your tenancy can be held, a corporate vehicle isn't a right nor are you automatically entitled to it – tenancies held under a corporation very often accompany some sort of personal guarantee. Consider Amanda's case – Amanda is a brand-new graduate, fresh out of veterinary school, taking over a practice location where she's virtually unknown to the landlord, without an established reputation in her profession (yet), and who hasn't built up a reputation of reliability with her landlord. Commercial landlords ultimately strive to protect their own interests. Meaning, should Amanda request to hold her tenancy under Amanda Black Veterinary Clinic Inc., it would be entirely unsurprising for her landlord to consider and request some sort of security, in the event that Amanda the new grad defaults on her lease – such as the personal guarantee. When requiring the personal guarantee from Amanda, the landlord therefore has some semblance of insurance and further recourse against Amanda personally, should her business not proceed according to plan – Amanda would therefore still be personally responsible for defaults in rent despite the corporate vehicle she wishes to hold her tenancy in.

• Cover