Personal Guarantee
A commitment by a business owner to be personally liable for lease obligations if their company defaults.
Definition
A personal guarantee (PG) makes an individual—typically the business owner—personally responsible for fulfilling lease terms if the business entity cannot. This means the landlord can pursue the guarantor's personal assets to recover unpaid rent or damages. Personal guarantees are standard in small bay industrial leasing because most tenants are small businesses without substantial corporate assets or credit history. Guarantees may be full (covering the entire lease term) or limited (burning off after a certain period of on-time payments, or capped at a dollar amount). Landlords evaluate the guarantor's personal credit, assets, and net worth when assessing risk. For tenants, a personal guarantee represents real financial exposure and should be negotiated carefully.
Example
An LLC signs a 3-year lease for a 3,000 SF unit at $15/SF ($45,000/year). The landlord requires the two LLC members to personally guarantee the lease. If the business fails in year two with $30,000 remaining on the lease, the landlord can pursue both individuals personally for that amount.