Animal Health Solutions

10 Covetrus | ph: 855.724.3461 | fx: 888.329.3861 | northamerica.covetrus.com On the other hand, consider Danny the veteran veterinarian – he has occupied his space for over 20 years, with a lease held under Danny Green, D.V.M. He has always paid his rent on time, and is, by all accounts, a very reliable tenant with steady flow of business. His lease comes up for renewal this year, and he puts forward a request to transfer his lease to a corporate vehicle, Green Veterinary Clinic, Inc., for both tax and liability reasons. From a commercial landlord's perspective, when considering reliability, financial consistency, and trustworthiness – Danny the veteran tenant seems like a safer bet in comparison to Amanda the new grad, when it comes to ensuring that the risk of default is minimal. In Danny the reliable veteran's case, there is certainly likelihood that the request to strike personal liability may be accepted because Danny the veteran has proven himself to be a party the landlord can rely on. Landlord negotiations and your protections Personal guarantees are not an insignificant matter. By signing one, you put your own personal net worth at risk. A saving grace for Amanda the new grad (or, newer veterinarians or tenants in general) is that leases are certainly negotiable. While it's common for landlords to request a personal guaranty, there are still several avenues of protection which could, certainly, lead to the ideal circumstance: a lease held within a corporation, with a personal guaranty that isn't required or entirely struck. There are several step-downs that can be offered during your lease negotiation. For example, setting a time limit to your guarantee may be offered (Example: Amanda Black Veterinary Clinic Inc., with a personal guarantee provided by Amanda Black for the first two years of the lease term only). Negotiations may also include setting a limit to your guarantee amount (Example: Amanda Black Veterinary Clinic Inc., with a personal guarantee provided by Amanda Black for an amount up to, and not exceeding, $80,000). The right to distrain Keep in mind, however, that a corporate vehicle doesn't protect you from blatant acts of wrongdoing nor does it protect you for default. No, it isn't a free for all. In specific states across North America, the right to distrain in favor of landlords does indeed exist (and, unfortunately, reinforces the requirement of personal guarantees). Consider the case where Danny the veteran, with a lease under Green Veterinary Clinic, Inc. and without a personal guarantee, unfortunately and surprisingly defaults on his lease. Depending on the laws in your state, landlords do indeed have the ability to collect on their rent by pursuing the assets and goods of the tenant – and, should Danny the veteran, in a panic, clear out his assets from the premises without his landlord's knowledge, some states provide the landlord with the right to pursue damages from the tenant, for even up to double the value of the goods and assets removed from the premises by Danny. It's therefore important to understand that shell corporations do not necessarily make you invincible and untouchable. Danny the veteran, as tenant and business owner, still has the obligation to fulfill the obligations his business agreed to in a binding contract. Conclusions There are various vehicles in which personal obligations may arise in a commercial leasing context. Overall, be aware of your options, its consequences on your business and taxable liability, limits you can negotiate to your personal liability, and the protections you have available, should you demonstrate yourself to be a viable candidate for a lease held within a corporate vehicle. About the author Eric Pook is the Managing Director of Cirrus Consulting Group, North America's preeminent commercial real estate and office lease negotiation firm for dentists. Eric has been consulting small businesses since the late 90's with an emphasis on revenue creation and cost mitigation. Eric advises doctors and dental groups each day on how to successfully leverage the dental office lease agreement to maximize practice value while reducing risk and liability. Eric can be reached at 1.800.459.3413 x 3255 or by visitingwww.cirrusconsultinggroup.com. Cirrus Consulting Group has had many years of experience negotiating with landlords on a variety of issues. Consider hiring professional negotiators to create a properly structured lease agreement for you, discuss your options with respect to your lease vehicle and personal liability, and help ensure the success of your property and your veterinary clinic.

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