CRE glossary
Personal guaranty
A personal guaranty is a promise from an individual (typically the tenant company's owner or principal) to be personally responsible for the tenant's lease obligations if the tenant entity defaults. The guarantor's personal assets become available to the landlord if the tenant fails to pay rent or breaches the lease. Most common when the tenant is a startup, small business, or new entity without established credit history.
Landlords ask for personal guaranties to reduce credit risk on weaker tenants. A new LLC with no operating history is essentially a balance sheet of cash and lease commitments — if the business fails, the entity dissolves and the landlord recovers little.
Tenants negotiating personal guaranties should focus on three carve-outs: cap the obligation (e.g., to 12–18 months base rent), burn down the guaranty over time (25% reduction per year), and exclude consequential damages.
An alternative is a Good Guy Guaranty — narrower than full personal guaranty and far more protective. Caps the guarantor's exposure to whatever's owed at the time the tenant surrenders the premises in good condition with proper notice.
Example
- Full personal guaranty
- All obligations through expiration
- Capped guaranty
- 12 months base rent maximum
- Burn-down structure
- 25% reduction per year, eliminated yr 4
- Good Guy alternative
- Caps to surrender date with proper notice
Broker perspective
Personal guaranties are scary but negotiable. Always propose Good Guy as the alternative. If full personal guaranty is demanded, negotiate cap (12 months base rent), burn-down (25% per year), and consequential-damage exclusion. Without these your client signs a financial blank check.
Frequently asked
People also ask
When are personal guaranties demanded?
Almost always for startups, new LLCs, sole proprietors, and small businesses with weak balance sheets.
Personal vs corporate guaranty?
Corporate is from another entity in the tenant's family. Personal is from an individual person. Personal creates individual liability.
Can I get out mid-lease?
Generally no, unless the lease has burn-down. Negotiate at signing.
Does it survive selling the business?
Not automatically. Negotiate a release tied to a credit-worthy successor at signing.
Related terms
Good guy guaranty
A limited personal guaranty that protects the landlord against unpaid rent only if the tenant doesn't surrender the space cleanly.
Letter of credit (LOC)
Bank-issued guarantee of rent payment, used in lieu of cash security deposit, especially for credit-light tenants.
Default and cure period
When a tenant breaches the lease and the time the landlord must give them to fix it before pursuing remedies.
Security deposit
Cash held by the landlord as collateral for the tenant's lease obligations — typically 1–3 months of base rent.
See personal guaranty extracted from a real lease.
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