Lease Guaranties: Personal Guarantees on Commercial Leases
When a landlord asks an owner to stand behind the lease personally.
What is a lease guaranty?
A lease guaranty is a promise by a third party — often the business owner personally, or a parent company — to be responsible for the tenant's obligations if the tenant defaults. Landlords use guaranties to add a creditworthy backstop when the tenant entity itself has limited assets.
Why landlords ask for a personal guaranty
Most commercial tenants are limited liability companies or corporations with few assets beyond the business. If that entity fails, the landlord's judgment against it may be worthless. A commercial lease guaranty lets the landlord reach the guarantor's personal or corporate assets, which is why owners of new or small businesses are so often asked to sign one.
Types of guaranties
- Full guaranty — the guarantor is liable for the entire lease for the whole term;
- Limited guaranty — liability is capped by dollar amount or time; and/or
- "Good guy" guaranty — a common market compromise in which the guarantor is released once the tenant vacates, surrenders the space, and is current on rent.
What a guarantor should negotiate
A guarantor should push to cap the amount and duration, tie any release to clear conditions, and make sure the guaranty ends if the lease is assigned or the space is surrendered. Signing an unlimited personal guaranty without these limits is one of the biggest risks a business owner takes in a lease.
How Nochumson P.C. helps
Nochumson P.C. negotiates lease guaranties for business owners and drafts enforceable guaranties for landlords, and enforces them in litigation when a tenant defaults. Contact us before you sign or rely on a guaranty.
Related articles:
- Commercial Lease Agreements: Key Terms to Negotiate
- Assigning a Commercial Lease
- Holdover Tenants: A Landlord's Options in Pennsylvania
- Estoppel Certificates in Commercial Real Estate
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