Landlord wants a personal guarantee on your commercial lease? What you're signing, and what it does to your next loan

The lease arrives with a clause you didn’t expect: the landlord wants you, personally, to guarantee the tenant’s obligations. For a lot of owners who rent their home and lease their shop, that’s the first personal guarantee they’ve ever been asked to give. It’s worth slowing down, because it affects more than the lease.

What does a personal guarantee on a commercial lease actually mean?

If your business is a company, the lease is normally between the landlord and that company. The landlord’s problem is that if the company folds, there’s nobody to chase. A director’s guarantee fixes that by making you personally liable for what the tenant owes under the lease.

Depending on the wording, that can include:

• unpaid rent and outgoings;
• make-good costs at the end of the lease;
• interest and the landlord’s enforcement costs;
• obligations during renewals, extensions or holding over.

It sits alongside the security deposit or bank guarantee, not instead of it. Advisers commonly describe the two as doing different jobs, which is why a landlord can ask for both. Read the deed itself: terms like “indemnity” and “continuing guarantee” widen the exposure beyond a simple promise to cover rent.

Why does the landlord ask, and why does it matter to you?

Landlords ask because a company tenant has limited assets. If you own no property, the landlord is really asking for your future earnings and your credit file to stand behind the lease.

For a tenant without property, the practical effect is this: the guarantee is unsecured on paper, but it can become a judgment against you personally. It also becomes one of the commitments a future lender sees when you apply for finance.

What are the ways to shrink it?

Everything is negotiable before you sign, and nothing is once you have. Common asks:

Ask	What it does
Cap the amount	Limits liability to a set number of months’ rent, instead of everything under the lease
Sunset date	Guarantee falls away after, say, the first two or three years of good payment history
Release on assignment	You’re released when the lease is transferred to an approved buyer
Bigger bank guarantee instead	Cash-backed comfort replaces your personal promise
Limit to the initial term	No carrying through options, renewals or holding over
Guarantee covers rent only	Keeps make-good and costs outside it

Retail leases have a security framework of their own. The Victorian Small Business Commission notes that a security deposit can be equal to one or more months’ rent, can take the form of a bank guarantee, and must be returned within 30 days of the lease ending if the tenant has met its obligations (VSBC). NSW and Queensland have comparable schemes, covered by the NSW Small Business Commission and the Queensland Small Business Commissioner. Those pages deal with security deposits and bonds. A personal guarantee is a separate contract, so have a lawyer read its wording rather than assuming the retail rules cap it.

Personal guarantee or bank guarantee: which is better for a renter?

A bank guarantee protects your personal assets, but your bank will typically want matching cash or a term deposit. For a tenant without property, that’s the trade: cash out of working capital versus personal exposure.

Here’s a rough way to decide:

1. If cash is tight in the first year, a capped personal guarantee with a sunset date keeps working capital free.
2. If you’ve got a cash buffer you don’t need, a larger bank guarantee instead of the personal one can be cleaner.
3. If the lease is long and the rent is high, the unlimited version is the one to avoid. The exposure grows with the term.

Our guide to lease upfront costs shows what else to budget on day one.

How does a lease guarantee affect getting a business loan?

Lenders assess the whole picture. The lease is a fixed monthly commitment, so it comes off your capacity to repay. A personal guarantee on the lease is a contingent liability: it doesn’t show up on your credit file like a loan, but it can come up when a lender asks about your obligations.

For unsecured finance, a lender also wants a director guarantee on the loan itself. That means you could have two guarantees on the go, one to the landlord and one to the lender. They’re different risks, but both rest on you. We explain how those work in guarantees and GSAs, and how to keep the family home out of the picture in keeping the family home out of it.

If you’re also thinking about fit-out money, note that a lender will look at how long is left on the lease. A short remaining term makes a multi-year loan for fixed fit-out harder to justify.

Illustrative example: two ways to sign the same lease

This is an example only, not a real business.

A café owner leases a shop for a five-year term. The landlord asks for a personal guarantee covering everything, plus a bank guarantee of a few months’ rent.

Option A: sign as asked. The café does well for three years, then a road project cuts trade and the owner closes. The guarantee reaches the remaining rent, outgoings and costs, and it doesn’t fade with the company.

Option B: negotiate before signing for a cap of six months’ rent and a sunset after 24 months of on-time payments. The risk is now bounded and shrinks over time.

Option B isn’t guaranteed to be offered. But asking is free and the answer is often “yes” to part of it.

What happens if the business can’t pay the rent?

Knowing the sequence helps you act early. A typical path looks like this:

1. Rent falls behind. The landlord sends a default notice to the tenant company, and often copies the guarantor.
2. The landlord calls on security. A bank guarantee is usually drawn first, because it’s quick and certain.
3. The landlord turns to you. If the security doesn’t cover the shortfall, the guarantee lets the landlord claim the balance from you personally.
4. Recovery action. That can mean a demand, a court claim and, if a judgment follows, enforcement against your assets and credit file.

The turning point is step one. Tenants who ring the landlord the day they see trouble coming often negotiate a payment arrangement, a short rent deferral or an agreed early exit. Tenants who wait tend to meet the lawyers. If cash is the problem rather than the business, a short-term working capital line arranged while your statements still look healthy can bridge a slow quarter. That’s far easier before the default notice than after.

Does it matter if I’m a sole trader or a company?

Yes. A sole trader is already personally liable for the lease, so there’s nothing extra to guarantee. The guarantee question mainly arises for companies and trusts, where the landlord wants a person standing behind the entity. If you trade through a trust, ask who the tenant is and who is guaranteeing, because a trustee company with no assets is the case landlords worry about most. Partners can end up jointly liable for the whole amount, not half each, so ask your lawyer how the guarantee describes shared liability.

What should you check before you sign?

• Is it limited or unlimited? Look for a stated cap.
• Does it cover renewals and holding over?
• What does it say about assignment and release?
• Is it a guarantee or an indemnity? Indemnities can be broader.
• Who else is signing? Joint guarantors can each be liable for the whole amount.
• What happens if the landlord sells the building?
• Has a lawyer read it? A short review costs a small fraction of the exposure.

Planning your finance around the guarantee

If you expect to borrow within the first year, plan the order:

1. Get your lease terms settled first, including any cap.
2. Pull together three to six months of clean bank statements. Our bank statements guide explains what assessors look for.
3. Work out what repayments your turnover supports with the unsecured borrowing estimator.
4. Talk to a lender before you commit to fit-out spend, not after.

Wondering where you stand? You can check what your turnover could support in about a minute.

Ready to see what your business could support?

A lease guarantee is one more reason to know your funding options before you need them. Enquiring takes about 60 seconds, and there’s no credit check when you enquire, so asking won’t touch your credit score. We don’t push your details out to a pile of lenders either, so your phone isn’t about to start ringing. A real person reads your situation, then calls to talk through what fits. Please answer the form accurately, including your lease and any guarantees, so we can match you properly first time.

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