A real estate (lease) personal guarantee is legal document used in lease agreements, ensuring the landlord has added security in case the tenant defaults. Personal guarantees act as a safety net for property owners when dealing with newer or smaller businesses.
Supplemental Forms
Release of Personal Guarantee – Used upon the completion of a lease or when the guarantor is being released for any other reason.
What Is a Personal Guarantee?
A personal guarantee is a legal commitment in which an individual agrees to cover the financial obligations of another party—typically a tenant—should they fail to meet their lease payments.
This type of agreement is common in both residential and commercial leases, especially when a tenant does not have a strong financial history or sufficient credit.
Types of Personal Guarantees in Lease Agreements
There are several types of personal guarantees, each carrying different levels of risk:
- Unlimited Personal Guarantee: The guarantor is responsible for the full lease amount if the tenant defaults, including unpaid rent, damages, and legal fees.
- Limited Personal Guarantee: This limits the guarantor’s liability to a certain amount or for a specified period.
- Joint and Several Guarantee: Multiple guarantors are each liable for the full debt, not just their portion.
- Conditional Guarantee: Liability only kicks in under certain conditions, such as if the primary tenant’s assets are exhausted.
Why Lenders Require It
Landlords often require a co-signer when the tenant doesn’t meet certain financial criteria, such as credit score or income threshold. This is particularly common in commercial leases, where businesses — especially startups or those with limited operating history — might not have the financial stability to secure a lease independently.
A personal guarantee or co-signer serves as an added layer of protection for landlords, ensuring that lease obligations will be fulfilled even if the tenant’s business struggles or fails.
In commercial settings, landlords are often more stringent due to the higher stakes involved, such as larger rental spaces and longer lease terms. A co-signer in these situations may be required to cover not just unpaid rent but also property damage, legal fees, and sometimes even the entire remaining lease term if the business defaults.
For residential leases, co-signers are generally required when the tenant has a low credit score, insufficient income, or an unstable financial history. Similar to commercial agreements, if the tenant defaults, the co-signer is responsible for rent payments and any associated legal costs.
However, commercial leases usually impose more rigorous financial demands on co-signers than residential leases due to the increased risks involved.
How to Negotiate a Favorable Personal Guarantee
When negotiating a personal guarantee, tenants should seek to limit liability by proposing alternatives such as a higher security deposit or a shorter guarantee period. Offering to provide financial statements or additional references can also reduce the perceived risk for the landlord.
Personal Guarantee for a Lease Agreement Sample
Download a real estate (lease) personal guarantee below in PDF and Word formats.
