Personal Guarantee & Indemnity: A Small-Business Tenant’s Biggest Hidden Risk
You sign the lease through your company — but the landlord wants you to sign a personal guarantee. If the company folds, the landlord can come straight for you and your home. It’s the most underrated risk in small-business leasing.
What is a personal guarantee / indemnity in a commercial lease?
When you sign a commercial lease through a company, the landlord often requires you (or the shareholders) to sign a separate personal guarantee or indemnity: if the company (tenant) defaults or falls into arrears, the landlord can come after you personally. The two differ — a guarantee is a secondary obligation (the company must default first before you’re on the hook), while an indemnity is an independent, primary obligation that often survives even after the tenant company goes bankrupt and a trustee disclaims the lease — stronger for the landlord, riskier for you. Liability can reach the entire remaining term plus costs.
Source: Ontario commercial leasing / Bankruptcy and Insolvency Act (BIA) practice (2026)
I’m Arthur Zhao. Many small-business owners assume “I signed through my company, it’s limited liability, worst case the company just closes.” But the moment you also sign a personal guarantee or indemnity behind the lease, that limited-liability shield is pierced — the company folds and the landlord uses your personal signature to pursue your house and your savings. It’s the clause commercial tenants most underestimate, and the one you most need to settle before signing.
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Why landlords want a personal guarantee
The key difference between guarantee and indemnity
⚠️Watch closely for a lease that uses “indemnity” rather than “guarantee” — many tenants assume they’re the same, but an indemnity is an independent obligation that can still reach you personally after the company’s bankruptcy and a disclaimed lease, and is harder to escape than an ordinary guarantee. Confirm which one you’re signing, and have a lawyer explain the consequences, before you sign.
How much you might personally owe
💡 Four ways to negotiate a personal guarantee: (1) a cap — limit personal liability to a dollar amount or a number of months’ rent, not the whole remaining term; (2) burn-off — the guarantee automatically reduces or ends after some years of on-time performance; (3) release on assignment — your guarantee is released once the business is assigned to a qualified assignee; and (4) limited to pre-assignment obligations — you’re liable only for arrears during your own operation. These turn “unlimited personal risk” into “controlled risk.”
Before signing, think the worst case through
Before signing a personal guarantee, ask yourself: if this business fails and the company closes, can I personally carry the remaining term’s rent? If not, you must negotiate a cap, burn-off, and release-on-assignment before signing — or substitute another form of credit support (a larger deposit, prepaid rent, a letter of credit) for an unlimited personal guarantee. Have a lawyer who knows commercial leasing review the clause — a personal guarantee is a one-time signature with a long-term bind, and nearly impossible to change afterward. This is general information, not legal advice; rely on your lawyer.
Frequently Asked Questions
I signed the lease through my company — why do I still need a personal guarantee?
Because a new or small company has no credit or assets (a weak covenant), and the landlord wants someone to pursue when the company can’t pay. For startups and small businesses, landlords almost always require a personal guarantee or indemnity. It’s standard — but you can negotiate caps, burn-off, and release on assignment.
What’s the difference between a guarantee and an indemnity, and which is riskier for me?
A guarantee is a secondary obligation (the company must default first, and it follows the main contract’s fate). An indemnity is an independent primary obligation — even if the company goes bankrupt and the lease is disclaimed by a trustee, the landlord can often still pursue you on it. The indemnity is riskier and harder to escape, so confirm which you’re signing.
If the company folds, how large is the personal-guarantee liability?
Often the entire remaining term’s rent + additional rent + the landlord’s enforcement costs — not just current arrears. Fold in year two of a five-year lease and you can be personally liable for the remaining three years. Unless the lease provides release on assignment, you may stay liable on the original lease even after selling the business.
Can a personal guarantee be negotiated? How?
Yes. Four ways: cap it to a dollar amount or number of months; add a burn-off that reduces/ends it after years of good performance; release it on assignment to a qualified assignee; and limit it to arrears during your own operation. Or substitute a larger deposit, prepaid rent, or a letter of credit for an unlimited guarantee. Have a commercial-leasing lawyer redraft the clause.
What should I do before signing a personal guarantee?
Think the worst case through: if the company closes, can I personally carry the remaining term’s rent? If not, negotiate a cap, burn-off, and release-on-assignment before signing, or substitute other credit support. A personal guarantee is a one-time signature with a long bind and is hard to change later — have a lawyer review it. This is not legal advice.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
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