Cam Appleton | Personal guarantee: Vancouver Commercial Real Estate Encyclopedia

For example: Hypothetical: a small company's owner guarantees a lease for the first few years. (Illustration only, not a real deal.)

This is a general industry term with no single official definition. Your lease or contract wording controls.

Example only, not a real client. Say you are signing a five-year lease for a new company, and the landlord asks you to stand behind it personally. We negotiate a limit: your personal promise covers one year of rent and falls away after three years if the rent has been paid on time.

What I’d tell a friend

If you are asked to back a lease personally, try to put limits on it. Know exactly what you are signing, and have a BC lawyer walk you through it first.

Why it matters to you

If the business can't pay the rent or the loan, the landlord or lender can come after your personal assets. Try to limit the amount and the time, and to get released once the business has a good record.

How to use it in your deal

Owners should negotiate limits: a cap tied to a few months of rent or a portion of the loan, an end date, release after a period of on-time payment, and release if the lease is assigned or the loan is refinanced. Read whether it covers renewals, amendments and interest. Get independent legal advice, especially if a spouse is asked to sign. Keep copies and track when you can ask for release.

Landlords and lenders should check that guarantors have assets and get proper wording. Buyers of a building should confirm guarantees transfer. Sellers of a business should ask to be released from guarantees when the buyer takes over, and make the release a closing condition; many owners discover years later they still guarantee a lease for a business they no longer own.

Watch for joint and several wording, meaning each guarantor can be pursued for the whole debt. If two partners guarantee a lease in Surrey and one disappears, the other may pay it all. Some guarantees also waive your right to notice when the lease changes; ask that they don't.

Mistakes I see

Unlimited guarantees. Assuming the sale of your business ends it. Not tracking release dates.

In BC and Vancouver

Guarantees are contracts enforced by BC courts.

Official sources: CanLII (court decisions)

Why landlords ask for it

A new company has no track record, so a landlord wants someone with assets to stand behind the rent. That is a reasonable request, but it moves the company’s risk onto your personal finances.

The landlord’s real concern is being left with empty space and unpaid costs. If you can address that in other ways, you have room to negotiate.

Ways to limit your exposure

You can ask for a cap at a set dollar amount, a limit to the first part of the term, or a release after a period of on-time payment. You can also ask that it end if the lease is assigned to a strong new tenant.

Alternatives include a larger deposit or a letter of credit from your bank. Which one works depends on the landlord and how much it wants your business.

Do I have to sign it? A decision checklist

What it does: a personal guarantee means that if your company can’t pay the rent or other lease costs, the landlord can come after you personally, which can include your savings and home. Many guarantees also survive renewals, extensions and even an assignment unless the wording says otherwise.

Why it’s asked for: new companies, small companies and companies without much financial history give a landlord little to rely on. That’s a fair concern, so the useful question is usually how to limit it, not whether it’s fair.

Ways tenants commonly try to limit it (what a landlord accepts depends on the space, the market and your numbers):

A dollar cap, such as a set number of months of rent.
A time limit, so it ends after the first few years if you’ve paid on time.
A larger deposit or letter of credit instead of, or to reduce, the guarantee.
Release when you assign the lease to an approved buyer, or when the business reaches a set financial test.
No automatic carry-over into renewals or lease amendments you didn’t sign personally.

Before you sign: raise it at the offer stage, where you have the most leverage. Have a BC lawyer read the actual guarantee wording, and think about whether your spouse or family assets are involved. If the answer is still a full, unlimited guarantee, compare the space against your alternatives with that risk counted in.

Questions to ask before you sign

What's my maximum exposure?
When does it end?
Am I released on sale?
Does it cover renewals?
Do I need my own lawyer?

Keep reading

Related terms: Guarantor, Indemnifier, Covenant (tenant)

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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.