Is a business owner personally liable under commercial leases?

A common question posed by new business owners revolves around whether “… an owner personally liable under commercial leases”. In reality, the personal liability of an owner under commercial leases depends on a number of case-specific factors, including:

• A business owner will sign a lease agreement as either an individual or a business entity. Depending on the business entity formed (such as an LLC or corporation), the owner will not be held personally liable, save for criminal conduct or specific obligations (guarantees) outlined otherwise. If the business owner is operating a sole proprietorship or without legal protection from a business entity, he or she may be held personally liable under a commercial lease.

• In the event something did occur, causing a business owner to be held personally liable without the distinct separation between individual and entity, it may be possible to still avoid personal financial liability. For example, if a business owner carries certain types of insurance coverage up to a certain amount, the insurance company may ultimately become liable for any claims made against the business owner. Granted, this depends on the amount of liability and amount of liability coverage.

In practice, having a real estate lawyer involved in any commercial real estate lease or transaction is highly advisable. More and more often, property owners are including guarantees into lease agreements, which give the landlord more rights to claims against the individual business owner, rather than against any business entity. Furthermore, any business operation should be reviewed by a lawyer to determine what legal status should be formed to protect the business owner from personal liability as well.