A personal guarantee is a commitment by a business owner or principal to be personally liable for lease obligations if the tenant entity defaults, often required by landlords for newer businesses, startups, or entities with limited credit history. This shifts risk from the landlord relying solely on the business entity's creditworthiness to also having recourse against the individual guarantor's personal assets.
When landlords typically require a personal guarantee
Landlords generally require personal guarantees when the tenant entity itself — particularly a newly formed LLC or corporation without an established credit or operating history — doesn't provide sufficient assurance of lease performance on its own. Established companies with strong credit and operating history can often negotiate leases without a personal guarantee, or with a limited/capped guarantee structure.
What to watch for before committing
Negotiating a capped or limited guarantee
Attempt to negotiate a guarantee capped at a specific dollar amount or limited to a portion of the lease term, rather than an unlimited personal guarantee.
Burn-off provisions
Negotiate a burn-off clause that reduces or eliminates the personal guarantee after a period of consistent, on-time lease performance.
Scope of guaranteed obligations
Understand exactly what obligations the personal guarantee covers — rent only, or also damages, legal fees, and other lease obligations.
Multiple guarantor considerations
If multiple business partners are involved, clarify whether the guarantee is joint and several or divided among guarantors.
Impact on personal credit and assets
Understand the real financial exposure a personal guarantee creates for your personal assets and credit before signing.
Alternatives to a full personal guarantee
Explore alternatives like a larger security deposit or letter of credit that might satisfy the landlord's risk concerns without a personal guarantee.
When you need to know this
- Newer businesses or startups — understanding why landlords often require this additional security
- Negotiating lease terms — seeking to limit or cap personal guarantee exposure
- Evaluating personal financial risk — assessing what's actually at stake by signing a personal guarantee
- Building business credit over time — working toward the point where a personal guarantee may no longer be required for future leases
Frequently asked questions
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