When a company takes a commercial lease, the landlord sometimes wants more reassurance than the company alone provides — especially for young or newly formed businesses without much track record. This is where personal guarantees commercial leases are asked to include come into play. Sometimes this comes up as early as the heads of terms stage, before the lease itself is even drafted. The usual answer is a personal guarantee. It’s a small thing to sign and a big thing to understand. If you’re a director being asked for one, it’s worth knowing exactly what you’re taking on.
What Personal Guarantees on Commercial Leases Cover
A personal guarantees commercial leases agreement makes an individual (typically a director or owner of the company) personally responsible for the company’s obligations under the lease. If the company fails to pay the rent, or doesn’t meet its other obligations, the landlord can pursue the guarantor personally for the money.
That’s the key point: the limited liability that normally protects you behind the company doesn’t apply to the thing you’ve personally guaranteed. If the business goes under owing rent, the landlord can come to you for it: from your own pocket, your savings, potentially your home.
What Personal Guarantees on Commercial Leases Can Include
A guarantee isn’t only about rent. Depending on how it’s drafted, it can extend to the full range of the tenant’s obligations: service charge, insurance contributions and, crucially, dilapidations, the cost of putting the premises back into repair at the end of the term. Dilapidations claims can run into serious money, and a guarantor who only thought about rent can get an unpleasant surprise.
I asked Richard, our SRA-regulated co-founder, what a director should understand before giving a personal guarantee:
A guarantor needs to understand that if the company doesn’t pay the rent or service charge, or fails to comply with any other obligation in the lease (such as repairing or decorating the property when it should), the guarantor can be compelled to step in. Often a guarantor can find themselves compelled to take over the lease altogether.
In a traditional negotiation, some of these liabilities can sometimes be softened: asking for a warning before liability bites, for instance, or excluding small or trivial breaches. With Aqqord, you don’t have to fight for that. Our leases are designed to be fair to both parties and already reflect the best realistic position a guarantor can expect.
Richard, our SRA-regulated co-founder
Negotiating Personal Guarantees on Commercial Leases
A personal guarantee isn’t all or nothing. There are several ways to limit the exposure, and a landlord who wants the deal will often accept some of them:
- A cap: limit the guarantee to a fixed sum, or to a set number of months’ rent, rather than open-ended liability.
- A time limit: agree that the guarantee falls away after a period of the company paying reliably, say two or three years.
- Release on assignment: make clear that properly assigning the lease to someone else ends the guarantee (subject to any authorised guarantee agreement, covered below).
- A rent deposit instead: sometimes a landlord will take a rent deposit in place of, or to reduce, a personal guarantee.
Personal Guarantees on Commercial Leases: The Assignment Trap
One thing to watch: if a lease is assigned to a new tenant, the landlord may require the outgoing tenant (and sometimes their guarantor) to give an authorised guarantee agreement, effectively guaranteeing the very next tenant’s performance. It’s a normal feature of commercial leases, but it means your liability under a guarantee may not end as cleanly as you’d expect when you hand the lease on. Read how the guarantee interacts with the alienation provisions before you sign.
Take It Seriously
A personal guarantee is one of those documents that feels like a formality at the start of an exciting new lease and becomes very real if things go wrong. It’s not a reason to walk away from a deal (guarantees are common and often unavoidable for smaller businesses) but it is a reason to understand the exposure, negotiate sensible limits, and avoid simply signing where the landlord points.
Frequently Asked Questions on Personal Guarantees
An agreement making an individual, usually a director or owner, personally responsible for the company’s obligations under the lease. Personal guarantees on commercial leases can vary in scope, so it’s worth checking exactly what yours covers. If the company doesn’t pay, the landlord can pursue the guarantor’s personal assets.
An agreement making an individual, usually a director or owner, personally responsible for the company’s obligations under the lease. If the company doesn’t pay, the landlord can pursue the guarantor’s personal assets.
No. Depending on the drafting it can cover the full range of the tenant’s obligations: service charge, insurance contributions, and dilapidations, which is the cost of putting the premises back into repair at the end of the term.
Often, yes. Common limits include a cap (a fixed sum or set number of months’ rent), a time limit after which the guarantee falls away, release on assignment, or offering a rent deposit instead.
Not necessarily. The landlord can require the outgoing tenant — and sometimes their guarantor — to give an authorised guarantee agreement, guaranteeing the incoming tenant’s performance. Check how the guarantee interacts with the lease’s alienation provisions.
Aqqord’s leases set out guarantor obligations clearly, so anyone standing behind a company tenant can see exactly what they’re agreeing to. Set up your lease and preview a full draft for free at aqqord.com, with nothing to pay until both parties sign.
