Commercial Lease Personal Guarantees: Negotiation Options for Business Owners

Signing a commercial lease can be one of the biggest commitments a business owner makes. The rent may be paid by the company, but a landlord may still require the owner to personally guarantee the lease. That can create a significant issue, “What happens to you personally if your business cannot pay the rent?”

A personal guarantee can potentially expose the business owner to liability beyond the assets of the company. But agreeing to a personal guarantee does not necessarily mean accepting every term the landlord initially proposes. The guarantee itself can be negotiated.

What Is a Personal Guarantee on a Commercial Lease?

A personal guarantee is a contractual promise by an individual to be responsible for certain obligations of the business tenant.

For example, your company may sign a five-year lease for commercial space. If you also sign a personal guarantee, the landlord may have the ability to pursue you personally if the company defaults, depending on the language of the guarantee.

Florida law recognizes that a guaranty can create personal liability, and the precise language of the agreement matters. In Fairway Mortgage Solutions, Inc. v. Locust Gardens, the Florida Fourth District Court of Appeal examined whether a corporate tenant’s president had personally guaranteed a commercial lease and emphasized the significance of the language used to establish the guaranty. That is why business owners should not treat the guarantee as routine paperwork.

Can You Negotiate a Personal Guarantee?

Yes, a landlord’s request for a personal guarantee does not necessarily mean you must accept unlimited personal liability. The negotiation often comes down to the scope of the guarantee. Instead of simply asking the landlord to remove it entirely, a business owner may have several options for reducing the exposure.

The right approach depends on the tenant, the property, the landlord’s requirements, and the business’s financial position.

How to Limit Personal Liability on a Commercial Lease

There are several provisions a business owner may attempt to negotiate.

Limit the Personal Guarantee to a Specific Dollar Amount

Rather than guaranteeing every obligation under the lease, the guaranty can potentially be capped at a specific amount. For example, the guarantee might be limited to a defined amount of rent, damages, or other obligations. This creates a clearer ceiling on the owner’s potential exposure.

Limit the Guarantee to a Specific Period

A guarantee does not necessarily have to continue for the entire life of the business relationship. A business owner may negotiate a guarantee that expires after a certain period, provided the lease and guaranty are drafted accordingly.

This distinction can be important. In Haggin v. Allstate Investments, Inc., the Florida Fourth District Court of Appeal held that the language of the guaranty limited the guarantor’s liability to the original lease term and specified renewal period rather than creating an unlimited continuing guaranty.

Negotiate a “Good Guy” Guaranty

A so-called “good guy” guaranty can limit the owner’s exposure when the tenant voluntarily vacates the premises and satisfies specified conditions.

The exact terms matter. Depending on the agreement, those conditions may involve providing notice, paying amounts due through the surrender date, and returning the premises in the required condition. This can give a landlord some protection while preventing a business owner from remaining personally liable for the entire remaining lease term.

Negotiate a Step-Down or Burn-Off Provision

Another option is a guarantee that decreases over time. For example, the owner might provide a larger guarantee during the first year and a reduced guarantee after the business has established a consistent payment history.

This can be particularly useful when the landlord’s concern is the financial risk associated with a new or unproven tenant.

What Should You Look for in a Commercial Lease Guarantee?

Before signing, a business owner should look beyond the words “personal guarantee” and examine exactly what obligations are being guaranteed.

Pay particular attention to:

• The duration of the guarantee
• Whether it covers lease renewals, extensions, or amendments
• Whether there is a dollar cap
• Whether it covers rent only or other lease obligations and damages
• What happens if the business assigns or subleases the premises
• Whether the guarantee can be released under specified circumstances
• Notice and default provisions

These details can materially change the amount of personal exposure involved.

Florida courts have also recognized that the language of a guaranty can determine whether liability extends to later lease modifications or renewals. In Haggin, the court relied on the plain language of the agreement in determining the scope of the guarantor’s obligations.

Does a Personal Guarantee Have to Be in Writing in Florida?

Generally, Florida’s statute of frauds requires certain promises to answer for another person’s debt or default to be in writing and signed by the person being charged. Florida Statutes § 725.01 specifically addresses promises to answer for the debt or default of another person and also addresses leases of real property for more than one year.

That does not mean every dispute over a guarantee is straightforward. The language, signatures, lease documents, amendments, and circumstances surrounding the agreement can all matter.

Should a Lawyer Review a Commercial Lease Personal Guarantee?

If you are being asked to personally guarantee a commercial lease, it is worth reviewing the guarantee before you sign it, not after your business encounters a problem.

A commercial lease is a business contract, and the personal guarantee can be one of its most consequential provisions. An attorney can review the lease and guaranty together, identify provisions that create personal exposure, and negotiate changes that better align the agreement with your business’s circumstances.

For Florida business owners, negotiating the guarantee before execution may provide an opportunity to protect personal assets while still giving the landlord the security it requires.

If you are negotiating a commercial lease in Florida, please don’t hesitate to contact one of our experienced attorneys at 305-570-2208. 

You can also contact our team directly at: arianna@ayalalawpa.com                       

Schedule a case evaluation online here.

[The opinions in this blog are not intended to be legal advice. You should consult with an attorney about the particulars of your case].