Personal Guarantees in Commercial Leases

Forming a company generally separates your personal finances from the business. A personal guarantee in a commercial lease undoes part of that separation. FindLaw describes the core effect plainly: it makes you personally liable for rent if the business cannot pay, and the landlord can sue you for unpaid rent even though the business is the tenant.

Landlords ask because a new or small company may have little credit history or few assets. The landlord may also be committing money up front through an improvement allowance, free rent and commissions, and it wants someone to stand behind that investment.

The risk can last longer than people expect. A New York law firm, Davidoff Hutcher & Citron, notes that a guarantee often survives lease termination, and that the bankruptcy of the business does not automatically wipe out the personal guarantee. Because the document is a separate contract, read it on its own and have your attorney explain how your state treats it.

Holland & Knight groups lease guaranties into several types. The name matters less than the language, so read what your draft actually covers.

• Full or absolute. Covers all tenant obligations, monetary and non-monetary, without limitation. The landlord can come to the guarantor without first meeting any conditions.
• Partial or limited. May cover only monetary obligations, cap liability at a dollar amount, reduce liability over time through a burn-off or sunset, or require the landlord to pursue the tenant first. Holland & Knight notes these are also called rolling or floating guaranties.
• Springing or bad acts. Applies only when a specified event happens, such as a default, insolvency, a net worth decline or bad acts like fraud or contamination.
• Good guy. Ends the guarantor’s liability when the tenant surrenders the premises, on stated conditions.

Limits often come with strings attached. Holland & Knight says most limited guarantees require the tenant to be in good standing, and limits may be subject to the guarantor reimbursing amortized improvement costs, allowances, commissions and enforcement costs. A cap that looks modest may not be the whole number.

The idea of a good guy guaranty is fair dealing on the way out. If the business cannot continue, the guarantor is protected from rent for the rest of the term as long as the tenant leaves properly. Holland & Knight says this form is common in New York City, and that the tenant must pay rent through the surrender date, return the keys, give reasonable advance notice and leave the space in good condition. Some versions also require removing alterations and restoring the premises.

Each condition can decide whether the protection works, so read them closely. How much notice is required? Does surrender require the landlord’s acceptance? New York’s Court of Appeals addressed a version of that question in October 2025 in 1995 CAM LLC v. West Side Advisors, holding that under that guaranty’s language the guarantor’s liability ended when the tenant vacated and not when the landlord later accepted the surrender. That is a New York case decided on specific language. Do not assume the same outcome elsewhere, and ask your attorney to spell out in the document what a proper surrender is.

If a landlord will not drop a guarantee altogether, the conversation becomes how to shrink it. Law firm commentary from Holland & Knight, Davidoff Hutcher & Citron and Bay Legal describes the common tools, and all of them can be requested. How far a landlord will go depends on your credit and leverage.

• ✓Can the guarantee be removed, based on our financials or our history of paying rent on time?
• ✓Can liability be capped at a fixed dollar amount or a set number of months of rent?
• ✓Can it burn off or step down over time after on-time performance? Would one late payment reset it?
• ✓Can it cover only an initial portion of the term?
• ✓Can it be limited to rent, leaving out non-monetary obligations?
• ✓Can it include good guy surrender language, and are the conditions workable?
• ✓If there are several owners, can each guarantee only a proportionate share?
• ✓Does the landlord have to pursue the tenant first?
• ✓Does it end if we sell the company or assign the lease with the landlord’s consent?
• ✓Does it extend to renewals, expansions and amendments that the guarantor never signed?
• ✓Is a spouse being asked to sign?

Bay Legal warns that a spouse’s signature can reach assets that might otherwise be protected, and also flags continuing guarantees, survival after assignment and waivers of defenses as provisions that can expand liability. The survival point deserves close attention if you might sell your business. In a 2007 Illinois appellate case summarized by DiTommaso Lubin, Chicago Exhibitors Corp. v. Jeepers! of Illinois, guarantors were held liable after their business was sold, under a guaranty written to survive lease changes, even though they did not sign a later amendment. The court found that amendment did not change their financial obligations. Make a release part of any sale or assignment plan, and have your attorney review the facts of your situation.

Davidoff Hutcher & Citron also recommends addressing guarantees in operating or shareholder agreements. If one partner is guaranteeing a lease for everyone, decide in advance who shares that risk.

Your aim is to give the landlord comfort about credit without giving it a claim on your home. FindLaw suggests showing steady profits or a history of on-time rent at other locations. Other options to explore with your advisors include:

• A larger security deposit that can reduce over time after on-time payment.
• A letter of credit, if your bank will issue one. Compare the cost and any collateral it needs.
• A guaranty from a parent or affiliated company in place of an individual.
• Paying a portion of the rent in advance.
• A smaller landlord investment, if lower improvement costs reduce what the landlord needs to protect.
• Stronger financial reporting to the landlord, such as sharing financial statements.

Each of these has its own cost, and cash tied up in a deposit is cash you cannot use elsewhere. Compare the options with your CPA, attorney and lender.

Timing matters. Competing buildings give you more leverage before you pick a landlord, so raise the guarantee at the proposal stage rather than in the last round of lease comments. Tenant Advisory Group represents tenants and buyers, and we try to put the guarantee on the table early, alongside rent and concessions. One client, Assured Healthcare Staffing, wrote:

Your options may be limited, FindLaw notes, and they may involve a lease amendment, renegotiating the terms or offering a settlement if you are exiting. A renewal, expansion or sale of the business can be a natural moment to ask, since the landlord wants something from you.

1. Find the signed guaranty and read it with every amendment to the lease.
2. Note whether it has a cap, a burn-off date, or a surrender condition, and add those dates to your lease abstract.
3. Before any renewal, expansion or assignment, ask for a release or reduction as part of the deal.
4. If you sell the company, make release or replacement of the guarantee a condition of the sale where possible.
5. If the business is in trouble, talk to your attorney before you leave the space, since the surrender conditions may affect your personal exposure.