"I'm starting a new retail business in my community. I've formed a limited liability company (LLC), and found what I think is a really excellent space, but the landlord wants me to commit to a ten-year lease. If I break the lease, I have to continue paying rent until he finds another tenant for the space, and if he can't get the same rent I was paying, I'll have to pay the difference between what I paid and what the new tenant is paying for the remainder of the 10-year term! What's more, I'm being asked to personally guarantee my LLC's obligations under the lease, so my house is at risk. Now, I really think this business is going to be successful, but it's a new type of business for my community, and I want to hedge my bets with the landlord in case the business goes under. Are there any ways to do this that won't cost me the lease?"

Generally, landlords do not like surprises from their tenants. What they want is to get their rent check every month, on time. If they do, life is beautiful. If they don't, life is hell. Landlords do not want to have to spend money turning their properties over every two or three years. They want long-term commitments, and to be protected in case rental rates crash while your lease is in effect. The provision you mention, requiring you to guarantee your rent for the remainder of the 10-year term if you break the lease, is a very standard one — in fact, I see it in just about every lease I review for my clients.

Having said that, there are some things you can do to limit your liability. Many landlords will agree to an "early termination" clause allowing you to surrender the lease before the 10-year term is up, on the following conditions: You have to be in the space a certain period of time (usually three years) before you can terminate the lease early; there must be no defaults in the payment of rent during those three years; you must give the landlord 90 to 180 days' notice of your intent to terminate early; and the landlord will keep your security deposit.

If your landlord won't accept that solution, then try to limit your personal guaranty. Since you only recently formed your LLC, there is no way any landlord will rely on its creditworthiness — they will want you on the hook personally, because that's where the assets are.

Once you are in the space at least three years, however, things change — your LLC will have a "net worth" of its own to support the lease, and assuming you've always paid your rent on time, the landlord will know you are a "good person" and won't be as worried about you defaulting.

Consider asking your landlord for a clause eliminating your personal guaranty after the first three years of the lease term, as long as there are no defaults under the lease. Your LLC will still be on the hook for the full 10-year term, but you won't have to worry about losing your house if the business fails.

If the landlord still won't bite, ask for a five-year lease, with a five-year optional renewal period (rather than a 10-year fixed term). It doesn't get you off the hook, but it will cut your potential exposure in half.

"I'm getting ready to sign a lease for my service business. The landlord wants the first month's rent up front and a two-month security deposit, both of which are fine with me. But the broker tells me the landlord wants an extra $30,000 up front as 'key money.' The lease says nothing about this. What is key money, and is it legal?"

"Key money" is a form of extortion — if you fail to make the payment, you don't get the keys, get it? Think of key money as a second brokerage commission you pay to the landlord on top of your broker's commission, and you've got the idea. Sadly, key money is not only legal, but common practice in some states.

Requiring a tenant to pay key money to secure a lease may be an "unfair trade practice" in your state — ask a good business lawyer to look into this, as your real estate lawyer may not be familiar with unfair trade statutes. If there's no way for you to legally challenge the key money payment, figure out how long it will take you to recoup the payment if your business is successful. If this is a highly desirable location, and there's a good chance you will recoup the payment in a short period of time ... well, as Tony Soprano would say, "If ya want the good stuff, ya gotta pay the price."

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series "Money Hunt." His latest books are "Small Business Survival Guide" (Adams Media, $12.95) and "The eBay Seller's Tax and Legal Answer Book" (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

COPYRIGHT 2008 CLIFFORD R. ENNICO

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