A personal guarantee is a promise you make in your own name to cover the company's obligations under the lease if the company cannot. Put plainly, if the business stops paying, the landlord can come after you. Not the company. You.
That is the whole point of it, from the landlord's side. The company might have no assets. You do.
Why landlords ask for one
Most small business tenants sign through a company, and a company can be wound up owing money with nothing left to chase. The guarantee gives the landlord a real person to pursue, with a house, savings and income behind the promise. For a landlord, that is the difference between a lease that is worth something and one that is only as good as the company's bank balance.
Reasonable from where they sit. The problem is what it does to you.
A personal guarantee undoes the main reason you used a company. The corporate structure limits the company's liability. The guarantee reaches straight past it to your own assets. Sign it without thinking and you have taken on the full lease personally.
The part that catches people out
Two traps come up again and again.
It does not end when you leave
People assume that selling the business or handing the lease to a new tenant ends their guarantee. Usually it does not. A guarantee typically runs until the landlord formally releases you in writing. So you can sell up, walk away, and still be on the hook if the new operator stops paying a year later. If you are assigning a lease, getting a written release is not a nice to have. It is the whole job.
It is often open ended
Many guarantees are not capped. They cover the rent, the outgoings, interest, the landlord's costs, and damages if the lease blows up early. On a multi year lease that can be a very large number, and none of it is limited to what you expected when you signed.
How to limit it before you sign
A personal guarantee is negotiable like anything else in the lease. Landlords expect to be asked. Some options that work:
- Cap the amount. Limit your exposure to a fixed dollar figure or a set number of months of rent, so you know the worst case.
- Make it fall away. Agree the guarantee ends after a period of clean payment history, say two years, once the landlord can see the business is solid.
- Offer a bank guarantee instead. A larger bank guarantee is capped and secured against your funds, and it keeps your other assets out of reach. Many tenants happily trade up to a bigger bank guarantee to avoid signing a personal one.
- Limit who gives it. If there are several directors, push back on each of them guaranteeing the whole amount.
- Tie the release to assignment. Build in that your guarantee ends when the lease is properly assigned to an approved new tenant.
If you are the landlord
A guarantee is sound protection, but an unreasonable one can cost you a good tenant or end up hard to enforce against someone with little to give. A capped, clearly drafted guarantee from a director who actually has assets is worth more than a sweeping one nobody read properly. Be clear about what you need it to cover and why, and keep the paperwork clean so it holds up if you ever have to rely on it.
The short version
A personal guarantee is the most personal thing you sign in a commercial lease, and it is usually presented as standard. It is not. Know what it covers, check whether it ends when you leave, and decide whether a cap, a sunset, or a bank guarantee gets you to a place you can live with. Spend ten minutes on it before you sign and you may save yourself the worst phone call of your business life.
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