Negotiate Lease · Article
A lease guarantee protects the landlord, using your money. Here’s what a personal guarantee really exposes, and how to get it capped, time-limited or waived before you sign.
A company director I spoke to had signed a six-year lease two years earlier. Personal guarantee, unlimited, one line he’d skimmed on the way to the signature.
Then trade softened. The company fell behind on rent. And the landlord did what the guarantee let him do: he went after the director personally. His house was on the table for a debt the business could no longer carry.
He knew he’d signed a guarantee. He had no idea what it actually exposed.
Lease guarantees are one of the least understood parts of a commercial lease, and one of the most expensive to get wrong. Here is what they are, what they cost you, and how to negotiate them down before you sign.
A lease guarantee is a promise from a third party, the guarantor, to cover the tenant’s obligations if the tenant can’t. If the company defaults, the guarantor pays.
In most small business leases, that guarantor is you: the director or shareholder, personally. So the guarantee ties your own assets to the company’s lease. The company signs, but you stand behind it.
Landlords ask for guarantees because they cut their risk. A limited company can fail and walk away from a lease. A personal guarantee means someone is still on the hook when it does.
Two things make guarantees a bigger deal than the single line they occupy in the document.
First, they can decide whether you get the lease at all. Landlords weigh the strength of your covenant and the guarantee behind it when they pick a tenant. A weak guarantee can cost you the site in a competitive market.
Second, they can outlast the business. An unlimited personal guarantee backs the full term. If the company folds in year three of a six-year lease, the guarantee doesn’t fold with it. The landlord can pursue you for the rent still owing, and for costs on top.
Not all guarantees carry the same risk. The main forms:
Either can be unlimited or limited. A limited guarantee is capped to a period of rent and outgoings, say three months gross, or a fixed figure like $50,000 plus GST. The gap between unlimited and capped is often the gap between a manageable risk and betting your house on the full term.
Here is the part most tenants miss: the guarantee is negotiable, like every other term. You do not have to accept the first version the landlord’s lease puts in front of you.
The moves that work:
This is not theoretical. In about 75% of the leases we negotiate for tenants, we get the personal guarantee capped or waived entirely. It’s one of the most winnable points in a lease, and one of the most valuable, because it’s your personal risk on the line.
If a lease in front of you asks for a personal guarantee, don’t sign it as written until you’ve tested it. A short conversation will tell you what it exposes and what I’d push to change.
Book a no-obligation call and we’ll look at the guarantee before you commit to it.
Get a tenant-side read on whether it can be capped or waived before you sign. 30 minutes, no obligation.
Tell me about the guarantee you’ve been asked for. In one call I’ll tell you what it exposes and what I’d push to change. No obligation.
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