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How to Get Out Of a Personal Guarantee on a Commercial Lease

A personal guarantee is a guarantee by an individual, to cover, backup, or indemnify something done by a corporate entity. For instance, a director guaranteeing to pay back a debt of the company just in case the company is not able to.

Since the commercial world is so unpredictable and full of ups and downs, landlords no longer trust business owners who lease a property. While these landlords are also willing to make concessions and compromise on certain matters, there usually must be a personal guarantee in the lease agreement so that the lease is paid for each month.

It simply means that the contract signed by the business owner has a condition of a personal guarantee. The landlord agrees to the terms and the building is leased for as long as the term specifies with possibilities of extension.

Personal guarantees in a lease with a commercial and residential property are, however, not secure. The conditions do not specify any certain property as designated or other assets to pay back the payments or loans if any are taken out.

If the business fails, the lender has two remedies to satisfy an outstanding balance: It can go after the business assets if any, and your personal assets. With these terms, the landlord does not need to negotiate beyond the initial personal guarantee.

4 Ways to Get Out of a Personal Guarantee on a Commercial Lease

Note that personally guaranteeing commercial leases can be risky, but it can provide benefits. It shows landlords/lenders that the business is more confident and willing to pay back the debt and use it for a fair, legitimate reason. It brings trust and can even be the final line between getting a lease or not.

If a financially struggling organization requests a lease from a landlord without a personal guarantee, the house owner may be more reluctant to agree, especially to the full amounts required, due to the challenge of them not getting their money back.

This compares to if a personal guarantee was used, where the chances of getting back the money are improved if the person has assets. However, you might not really get out of a personal guarantee so easily, but here are steps you can consider;

  1. Have Personal Guarantee Insurance

This type of insurance coverage exists to protect the guarantors’ assets when they are at risk from a liquidating company. Note that when the lender or landlord seeks personal assets to be used to repay the lease or loan balance after the company liquidates; having this insurance covers some of the liability.

Howbeit, the value depends on the insurance coverage taken out, but usually is worth up to 70 percent of the insurers’ net liability. But have it in mind that these insurances are expensive. This is because if you are asking for insurance you are already hinting that perhaps the guarantee is not that solid.

  1. Renegotiating The Lease Contract

When leveraging the personal guarantee, set limits with the investor, so you can limit your consequences. Ensure you read all small print before signing! It is advisable you ask for a short time period for the guarantee, rather than signing ‘forever and unconditionally’.

Why not ask for the guarantee to only apply to a certain amount of time of the payback period? You can also request for only a percentage of the lease to be paid in this way. If a company owes $30,000, and you personally guarantee the full amount, you will have to pay back the full extent of this on their behalf (if they are unable to pay back themselves).

Only personally guaranteeing 50 percent, for instance, would mean in the case of the company being unable to pay back the debt, you would only have to pay back $15,000 of the amount. You can also carefully select the items which can be seized – do not risk everything. Negotiating such contracts may be difficult, but you never know unless you try.

  1. Use an Individual Voluntary Arrangement (IVA)

This method is quite common where the personal guarantee has been called in. It may be possible to pay off the debt over a longer period of time using an IVA. Note that an IVA can spread the cost over 3-5 years and even write some of the debt off.

Normally the lender or landlord will want to see at least 40 percent of the lease paid back. Note that an IVA is overseen by an insolvency practitioner who collects the money on the creditors’ behalf. However, the downside of this is that it will be hard to obtain any credit as your personal credit score will be very poor.

  1. Go Bankrupt

It’s relatively common for a business owner to file individual bankruptcy to get rid of a personal guarantee—and most personal guarantees will qualify for discharge. If it’s a no-dischargeable debt, however, bankruptcy won’t help.

Nonetheless, keep in mind that filing on behalf of the business won’t get rid of your personal obligation to pay back the guaranteed loan. In fact, in that scenario, the personal guarantee will work against you. The trustee appointed to oversee the case will more or less view the personal guarantee as a business asset and look to you and your assets for money to pay creditors.

In the same vein, if you signed a personal guarantee for a friend or family member’s loan, you’ll still be on the hook if they file for bankruptcy. You’ll have to file individual bankruptcy to get rid of the obligation. The exception is if the friend or family member pays off the debt.


If you sign a personal guarantee as part of the commercial lease, your options for an early exit are fairly limited. You can choose to ask for an amendment to the lease or renegotiate the guarantee terms. You can also choose to offer the landlord a settlement on the remaining rent debt.

Or you could just bail, and handle it in court later. But just as it isn’t advisable you enter a commercial lease before consulting an experienced commercial attorney, you shouldn’t seek to get out of one without consulting a lawyer.