Crib Sheet: No Guarantees

Too many of us have learned what signing a personal guarantee can mean when things don’t go according to plan.

Pink ceramic piggy bank in the shape of a pig broken open with crumpled dollar bills exposed.
Your tenant may want your kid to sign a personal guarantee. Bad idea.

The personal guarantee…it’s the thing that can keep you up at night. If the business is successful, all is well and good. But if it’s not, the painful consequences can follow you into the afterlife. After a multitude of restaurants closed during the pandemic, many operators discovered the very real impact of the personal guarantee: Even after the associated businesses were long gone, they were still legally liable for rent payments, late fees, penalties, and attorney fees on multi-year leases. We asked family business attorney Greg Creer of Armitage Bickford Creer, LLC, for his take on when and how you can negotiate the terms.

A Personal Guarantee Is Not Always Necessary

While personal guarantees are common, they are not legally mandated or required. Ask if it is necessary or if there is a way around it. Landlords will often remove the requirement on renewal leases for successful businesses. Even for new leases, landlords may be willing to forego a personal guarantee if the owner can show the business is well-capitalized and therefore at low risk of defaulting. 

Not Everyone Needs to Sign the Personal Guarantee

Some landlords want all business owners, their associates, and their families to sign the personal guarantee. But having associates and family members sign is often not necessary—and it exposes them to the risks of the lease without necessarily receiving the benefits of the business. In order to protect family assets, a spouse should not sign a personal guarantee. The binding contract should be limited to only those who have a direct ownership interest in the business.

Limiting the Personal Guarantee

If a landlord cannot be deterred from requiring a personal guarantee, then limits should be placed on it. This is where hiring a lawyer can be very helpful, as many guarantees include language the general public is unfamiliar with and therefore doesn’t know how to limit. Suggested ways to negotiate limits on a personal guarantee include:

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/ Copyright: korarkar

Spreading the Risk

Having all business owners, not just the primary owner, sign the personal guarantee will spread out the risk. This does not negate the prior advice to avoid having family members and associates sign. Rather, as a new owner comes into the business, he or she should be required to accept responsibility for the personal guarantee so that all owners are sharing the risk of a default on the lease.

Limiting Time

Putting a strict time limit on when a personal guarantee can be enforced can also provide some practical relief. Landlords may agree to such a limit if the business is successful. For example, if the business is profitable after a certain number of years, it is unlikely that the personal guarantee would be necessary at that point because the business should be able to successfully pay rent going forward. Suggestions would be to limit the personal guarantee to the first few years or the initial term of the lease extensions. 

Capping the Personal Guarantee

Similar to limiting the time on a personal guarantee, it is also possible to ask for a financial cap. This means the guarantor is responsible for only the base amount of unpaid rent—not for any late fees, interest, attorney fees, or other costs. It can also be presented as a strict dollar amount, which allows the guarantor to plan for the worst-case scenario. Dollar limits must reflect a reasonable amount the landlord would expect to recover should there be a default on the lease.

For example, take a three-year lease with rent of $10,000 per month, which totals $360,000 over the full three years. A fixed cap of $360,000 is not a reasonable cap because the maximum liability on the lease will be less than $360,000 after the first rent payment is made. The landlord may still want that $360,000 cap because he or she wants the personal guarantee to cover more than just unpaid rent; they may want it to cover expenses such as attorney fees. (Beware that this can incentivize attorneys to run up their legal bills if the cap exceeds the unpaid rent.) Instead, consider suggesting formulas to reduce the cap on the personal guarantee, such as reducing the guarantee by $30,000 per quarter if rent is paid in a timely manner. This formally allows the cap to be logically reduced over time. 

Asset Protection Planning

Finally, the most effective way of dealing with a personal guarantee may be for the guarantor to do some asset protection planning as soon as a guarantee is signed. Obviously, taking steps to make sure the business can always pay its rent on time (such as using business interruption insurance and budgeting prudently) helps, but too many owners rely on the assumption that the business will always be successful. A guarantor should also consider re-titling personal and real property under a spouse’s name and/or creating trusts to protect his or her assets. An effective asset protection plan certainly helps should the business run into unfortunate circumstances and the landlord needs to collect through the personal guarantee.

In the end, personal guarantees should never be taken lightly. Take caution before inking a deal and never be afraid to ask if the guarantee can be waived or limited as part of the lease negotiations.

Greg Creer, LLM is a family business attorney at Armitage Bickford Creer, LLC. If you need help negotiating or understanding the terms of a lease, reach out to him at

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