When you have to commit to a property lease you are committing to two very risky things.

First, you are probably going to have to pay for the build out.

The build out is when the landlord has to conform the space to your needs and to whatever business you are performing in the space. You could possibly negotiate who pays the build out with the landlord but landlords usually do not take a build out risk with startups. You could also incorporate the build out into the lease as part of the monthly lease payments in order to avoid the upfront investment and the landlord may do that, but this leads to the second risk associated with a lease and that is a personal guarantee. Because you are a startup business in all likelihood the landlord will require that you sign a personal guarantee on the lease.

So if you think you did a great thing by stretching out the build out payments over the life of the lease, think again. The bottom line is the personal guarantee on the lease obligates you personally to all of the lease payments, expenses and whatever you added to the lease payments for the build out.

A personal guarantee is when you guarantee the payment of an obligation after the primary obligor has failed to pay. This is when you personally sign to pay an obligation. In most cases when you start a business it is the business that is the primary obligor. A personal guarantee obligates you personally to pay the obligation if the primary obligor (your company) fails to pay. Simply put, if your company goes out of business you are on the hook.

To reiterate: Do not commit to property leases. Instead, either start the business out of your home or find a place where the rent is cheap and you can be a month to month tenant at will. Another option is to sublet space from another tenant who may have too much space, but remember do not sign a lease. Have a month to month arrangement as a sub-tenant. That is a win–win.

For example, I once started a business that connected residential landlords with tenants looking

for housing. I signed a 3 year office lease to operate this business because I thought it looked more professional and that we meant business if the business had an office.

Big Mistake!

Nobody cares if the business has an office. I could have very easily started this business in my house and saved myself money.