Personal Guarantees in Commercial Leases: Limited vs. Full (and Burn-Off Strategies)
Personal Guarantees in Commercial Leases: Limited vs. Full (and Burn-Off Strategies)
Many small-business tenants assume the lease is a business obligation—then discover the landlord requires a personal guarantee.
A guarantee can make the owner personally liable for rent and other obligations even if the business fails. It’s one of the most financially significant parts of a lease, and it’s often presented as “non-negotiable.”
This guide explains common guarantee types and negotiation strategies tenants use to reduce personal risk. (Not legal advice.)
What is a personal guarantee?
A personal guarantee is a promise by an individual (often the owner) to pay the lease obligations if the tenant entity cannot.
Guarantees can cover:
- unpaid rent
- additional rent/CAM
- damage and repair costs
- attorney fees and collection costs
- sometimes the entire remaining lease term (via “acceleration”)
The exact scope depends on the wording.
The three common guarantee types
1) Full, continuing guarantee (highest risk)
This is the landlord’s preferred version. It can survive assignments, renewals, and modifications unless you limit it.
2) Limited guarantee (amount or scope-limited)
Limits the guarantee by:
- amount (e.g., up to 6 months’ rent)
- scope (e.g., rent only, excluding consequential damages)
- time (e.g., first 12 months)
3) “Burn-off” guarantee (risk decreases over time)
A burn-off guarantee ends after:
- a time period (e.g., 12–24 months)
- performance milestones (e.g., no defaults + financials)
- a combination of both
Burn-off is common because it gives the landlord early security while letting the tenant earn trust.
Red flags tenants should watch for
- Guarantee survives assignment even after a sale of the business
- Guarantee covers attorney fees without limits
- Guarantee includes “all obligations of any kind” including things you can’t control
- Cross-default language tying other obligations or locations to this lease
- Confession-of-judgment style remedies (varies by jurisdiction)
Even if the landlord insists on a guarantee, you can often negotiate its scope.
Practical negotiation strategies
Strategy A: Offer more security, but less personal risk
Examples:
- higher security deposit instead of a full guarantee
- letter of credit (more complex, but sometimes preferred)
Strategy B: Limit the guarantee to “money owed” only
Try to limit to:
- unpaid rent and additional rent (not “all damages”)
- exclude consequential damages and broad indemnities
Strategy C: Burn-off after performance
Common burn-off structures:
- Guarantee ends after 12 months with no defaults
- Guarantee reduces from 12 months → 6 months → 0 over time
Strategy D: Tie guarantee to occupancy, not full term
If the business fails early, your exposure can be huge. Limiting the guarantee reduces catastrophic downside.
How to evaluate whether a guarantee is worth it
Ask yourself:
- Is the location strategic enough to justify personal risk?
- Can I absorb worst-case exposure?
- Are there alternative locations or landlords that won’t require a guarantee?
Your “decision framework” should include both economics and downside risk.
How BizLeaseCheck helps
BizLeaseCheck flags:
- personal guarantee language
- broad default and acceleration terms
- fee shifting and cost pass-throughs that expand guarantee exposure
You can upload a lease and see the risks in minutes:
/analyze
Not legal advice
This article is for informational purposes only and is not legal advice. Guarantee enforceability and market norms vary widely by location and deal size. Use this as a checklist and confirm key terms with qualified professionals.