How to Calculate Remaining Guarantee on a Lease

Learn how to calculate the remaining guarantee on a lease with a step-by-step guide, using Milk and Honey in Fairfax as an example.

11 Apr 2025 By Joe Lawler

In this guide, we'll learn how to calculate the remaining guarantee on a lease by examining the lease document and identifying key details. Using Milk and Honey in Fairfax as an example, we'll navigate through the lease to find the guarantee terms and determine the commencement date. We'll then calculate the remaining guarantee by reviewing the budget for 2025, focusing on rent, CAM, and real estate taxes. This process involves understanding the lease's legal language and using tools like Microsoft Excel to organize and compute the necessary figures.

Let's get started

To calculate the remaining guarantee on a lease, first open the lease. For example, consider Milk and Honey in Fairfax at the Turnpike Shopping Center

The guarantee is typically included as one of the exhibits in the lease and is found later in the document. In this instance is starts on page 65 of 69.

Much of the information contained in the guaranty is legal language establishing the relevant entities and their liabilities.

It's important to note the Tenant entity of the Lease when considering the guaranty.

In this instance it's a Single Purpose Entity (SPE), "Milk & Honey Turnpike, LLC." In the event we need to exit the lease, we are only responsible for the guaranty to the landlord.

If we hadn't set-up a SPE and the tenant was Thompson Retail Food Group (which holds all the assets of the Milk & Honey brand) then we would have effectively guaranteed all rent that is still to come due under the base term of the lease (excluding options).

The impact of this issue can be hundreds of thousands to millions of dollars and often times makes the decision to exit the unit a moot point.

Scroll within the guaranty to find the paragraph beginning with "Notwithstanding." Here, you'll see that at any time during the first three years of the original term, the guarantee equals 12 full calendar months of rent due (rent includes, CAM, Insurance and Taxes for the calculation) plus associated costs (attorney's fees) .

Step #2: Find the paragraph beginning with "Notwithstanding" toward the end of the Guaranty — Find the paragraph beginning with "Notwithstanding" toward the end of the Guaranty

Often the guaranty includes a "burn down" which means that during the first three years of the lease term, the guaranty is equivalent to 3 years' rent. Beginning on the 4th lease year, the guaranty becomes 1 year's rent.

Now we need to determine the Rent Commencement Date by scrolling back to the top of the document:

Often times you'll need the "Effective Date" to determine the "Rent Commencement Date" which serves as the trigger for the guaranty calculation. In some leases, there's a certificate included as an exhibit to the lease that explicitly states the rent commencement. In this instance it's defined as a calculation and has a number of factors that need to considered including delivery, permits and the date the unit opened for business.

Step #3: Determining Rent Commencement Date — Determining Rent Commencement Date

For the purposes of the SOP, we'll use LeaseQuery as our source of truth for the Rent Commencement Date. Our 3rd party Lease Administration Partner (REBO) has verified these dates with the Landlords.

Rent Commencement is not as important in this example because the guaranty is for 12 months, however for a guaranty that includes a burndown, we need to know where in term we currently stand. For example if the lease said, "any time in the first 3 years the tenant is responsible for 3 year's rent" we would currently (this SOP is being written in April of 2025) be in that period (it would end 11/6/2025) and would owe 36 months * (Rent + CAM + RE Taxes).

Step #5: Review the P&L or Annual Budget to Determine the Rent Amount for the Guaranty Calc — Review the P&L or Annual Budget to Determine the Rent Amount for the Guaranty Calc

Here, you can see the rent period by period for Milk and Honey Fairfax.

Step #6: Consider Rent + CAM + Real Estate Taxes — Consider Rent + CAM + Real Estate Taxes

The total rent due for the year is $112,500, plus CAM charges of $15,882.96, and real estate taxes of $11,541.96 for a grand total of $139,924.92 for the guaranty amount.

If this was a burndown type of guaranty we'd owe $139,924 * 3 years = $419,774 until December 2025 (3 years after the rent commencement identified earlier).

It would make sense to compare the monthly losses to the reduction in guaranty amount before making a decision as to when to exit the unit.

The calculation above is approximate. The rent changes when a new lease year begins and the CAM and RE taxes are provided by the LL on an annual basis.