Forming an LLC or corporation is supposed to protect your personal assets from business liabilities. A personal guaranty on a commercial lease can undo that protection — at least with respect to the lease itself. Many tenants sign one without fully understanding what they’ve agreed to.
What Is a Personal Guaranty?
A personal guaranty is a separate agreement, typically signed alongside the lease, in which an individual — usually a business owner — personally promises to cover the tenant entity’s lease obligations if the business fails to pay. If the LLC defaults, the landlord can pursue the guarantor’s personal assets: bank accounts, personal property, and in some cases, real estate.
Why Landlords Ask for Them
New businesses, businesses without an established credit history, or businesses in industries landlords consider higher-risk are the most common targets for a personal guaranty requirement. From the landlord’s perspective, it’s a way to reduce risk on a tenant that doesn’t yet have a proven track record.
Types of Personal Guaranties
Not all personal guaranties are the same, and the type matters significantly:
- Full (unlimited) guaranty — the guarantor is liable for the entire remaining lease obligation, for the full term, with no cap
- Limited guaranty — liability is capped at a specific dollar amount or a specific time period (for example, the first 12 or 24 months of the lease)
- Good guy guaranty — common in some markets, this type releases the guarantor once the tenant vacates the space and returns it to the landlord in the condition required, even if money is still technically owed under the lease term
Negotiating a Personal Guaranty
If a landlord requires a personal guaranty as a condition of leasing, tenants still have room to negotiate its scope:
- Push for a cap — a dollar limit or a time limit (such as the first year or two of the term) rather than unlimited exposure
- Negotiate a burn-off provision — many guaranties can be structured to reduce or disappear entirely once the tenant demonstrates a track record of timely payment, often after 12–24 months
- Clarify triggering events — make sure the guaranty is triggered only by actual default, not by technical or immaterial breaches
- Consider a good guy guaranty structure where appropriate, particularly for retail and office leases
What Happens If You Sign One and Then Sell the Business
This is where many business owners get caught off guard. A personal guaranty typically survives a sale of the business unless it is specifically addressed in the transaction and the landlord agrees to release the original guarantor. This ties directly into how assignment and subletting clauses are negotiated — if you’re planning to sell in the future, both the assignment rights and the guaranty release should be negotiated together, not treated as separate issues.
The Bottom Line
A personal guaranty is not just paperwork — it’s a real transfer of risk from your business entity to you personally. Before signing one, it’s worth having an attorney review not just the lease, but the guaranty itself, since the two documents don’t always get equal scrutiny. If you’re also operating as a franchisee, note that personal guaranties in franchise agreements often carry broader exposure than a lease guaranty alone — worth reviewing both together.
Reviewing a lease that includes a personal guaranty? Brent A. Levison, P.A. helps commercial tenants understand and negotiate guaranty terms before they sign — not after. Contact the firm today for a consultation.
The information in this article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.